Are you familiar with Lemonade (NYSE:LMND)? I’m not talking about the drink; I’m talking about the insurance company. Lemonade stock went public earlier this summer, hitting the tape on July 5.
While the company delivered a top- and bottom-line earnings beat in mid-August, shares are struggling. The stock looks poised to take out its August low. If it does, it could put $50 in play, which comes into play near its post-IPO low.
Keep in mind, this name went public at $29 per share, but opened higher by more than 70% at $50.06. Given the volatility that we tend to see around IPOs, it wouldn’t be surprising for this name to correct in the short term.
In fact, it really wouldn’t be surprising to see this name notably below $50 at some point. But that doesn’t make it one to sleep on.
Breaking Down LMND Stock
Lemonade is an A.I.-based insurance company that has aimed to make insurance simple and easy. Let the bidding begin, right?
Kidding aside, it’s a fresh tech-based approach to what has historically been a frustrating and sloppy process for consumers. The IPO was originally expected to price in the $23 to $26 range, then $26 to $28. At $29, there was clear demand for this stock.
From the company’s own S-1 filing:
“By leveraging technology, data, artificial intelligence, contemporary design, and behavioral economics, we believe we are making insurance more delightful, more affordable, more precise, and more socially impactful.”
I like the idea of leveraging technology to make for a more efficient process, although it’d be foolish to think some of the mega-insurers out there do not use technology to maximize their returns too. I’m talking about companies like Allstate (NYSE:ALL) and Progressive (NYSE:PGR), for instance.
Still, if Lemonade can generate traction among millennials and younger renters, it could have potential. Who knows, maybe one of the larger insurers will see it as a nice acquisition down the road.
The Most Recent Quarter
When the company reported earnings, a loss of $1.77 per share came in 41 cents a head of estimates. Revenue of $29.9 million jumped more than 116% year-over-year and beat estimates by $0.6 million. It was a solid quarter, despite the disruptions from Covid-19.
There lies the promise though, which is that the company didn’t see a huge impact to its business. Management wrote that:
“Less than 1% of our customers opted to defer their payments, while retention rates, click-through rates, and conversion rates all held steady. Trajectories that we’d seen prior to the pandemic – rapid growth, improving marketing efficiencies, declining loss ratios – all continued their forward march, apparently unperturbed by the contagion.”
While management’s full-year and Q3 outlook fell a bit short of expectations, I am more impressed by the stability through what has to be one of the most disruptive periods for most businesses. If Lemonade can make it through that, I feel like it can make it through anything.
Trading Lemonade Stock
With all that said, what does Lemonade stock chart look like? To be honest, it leans a bit bearish.
I like the long-term potential of Lemonade. But I don’t want to buy into a non-bullish technical setup with the S&P 500 at all-time highs. Especially with a recent IPO. With that said, when could this buy a buying opportunity?
Currently Lemonade stock is below its 10- and 20-day moving averages. On the one hand, it’s above downtrend resistance (blue line), but on the other hand, it continues to make a series of lower highs.
The buy-the-dip mentality changes if LMND stock can reverse higher, reclaiming its short-term moving averages and taking out the Aug 24 high at $66.36.
On the downside, I am watching the August low closely. The $56.50 to $57 area was support twice this month. If it breaks, it puts the IPO open and low in play at $50.06 and $49.02, respectively.
If we draw retracements from the $29 IPO price to the current high, there are a few levels to know. The first is $54.79, which is the 38.2% retracement. The other is $44.93, the 23.6% retracement.
I included these levels for investors in case some of the key levels above break — the August lows and the post-IPO low — but Lemonade stock seems to “magically” find support. It may not happen that way, but they are worth knowing.