As Losses Mount, There Are Way Better Buys Than Lemonade Stock

Lemonade, Inc. (NASDAQ:LMND) has been consistently falling ever since its IPO on July 2. Investors will do well to avoid Lemonade stock as I do not see this trend turning around anytime soon.

It's a Compelling Company, but Now Isn't the Time to Buy Lemonade Stock

Source: Piotr Swat /

One of the major reasons for this is that the company is still deeply unprofitable. And despite the attempt to appeal to Millennial investors in their recent Q2 shareholder letter, there was no forecast of future profitability.

Therefore there is little to look forward to as a shareholder in the Lemonade stock.

In fact, the net income loss for the quarter was $21 million. This was only slightly down from the $23 million it lost in net income in Q2 a year ago. Granted, its premiums more than doubled a year later, so the net income loss was a lower percentage of the total revenue. But it was still a loss.

Moreover, the company gave no guidance as to when it will become profitable on a net income basis. In addition, the picture is the same on a cash flow basis.

A Closer Look at Lemonade Stock

In the first six months of this year, Lemonade lost $35.3 million in cash flow from operations (CFFO), according to its latest 10-Q filing page 6. This was only slightly down from last year’s first six months, which showed a negative $37 million in CFFO.

Let’s look at forecasts by analysts. Seeking Alpha shows that four different analysts have an average estimate of negative $2.74 earnings per share (EPS) for 2020. However, this only improves slightly for 2021. Their average estimate is for negative EPS of $2.64 for 2021.

The estimates at Yahoo! Finance are worse. They polled five analysts and their average estimate is for negative $4.27 EPS for 2020. That is much worse than the Seeking Alpha estimates of negative $2.74. Moreover, the 2021 estimate average is negative $2.91 vs. negative $2.64.

So it seems analysts disagree a good deal on this company’s future estimate. But one thing is for sure. They don’t profitability anywhere near in the future for this company.

Comparison With Assurant

Lemonade stock now has a $2.84 billion market capitalization. Assurant (NYSE:AIZ) is in renters and home insurance just like Lemonade. It has a market cap of $7.08 billion. This is 2.5 times as large as Lemonade.

However, Assurant is super profitable, cheap and has 83 times the revenue that Lemonade has. That’s right. Lemonade made $29.9 million in revenue in Q2 and Assurant made $2.47 billion in revenue.

Lemonade’s market revenue is 1.2% of Assurant’s market cap, but Lemonade’s market cap is still 40% of the size of Assurant. That seems off.

And, of course, Assurant made $173.5 million in its latest quarter, compared to Lemonade’s losses. Moreover, AIZ stock trades for just 12.4 times 2020 earnings, compared to Lemonade’s losses of negative $2.74, according to Seeking Alpha‘s poll of analysts.

And, of course, let’s don’t forget dividends. Assurant pays a respectable 2.1% dividend yield. Lemonade does not pay a dividend, since it has no profits.

The point is either Assurant stock is wildly undervalued, or Lemonade is simply way too expensive. It seems obvious that it is the latter.

What to Do With Lemonade Stock

It should be obvious to you now what you should do with Lemonade stock. Avoid it, at least until the company can get profitable, or even close to profitability.

Lemonade makes a big point about being all digital and its ability to operate as a virtual company. But I don’t think that this is as big a competitive advantage as it appears. Insurance companies are constantly looking for ways to reduce their costs. I believe that many of Lemonade’s competitors could eventually convert to an all-digital, virtual company posture as well.

The bottom line is this: Wait until there is a clear investable theme and a margin of safety in your investments. I don’t see that yet with Lemonade stock.

On the date of publication, Mark R. Hake did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.

Mark Hake runs the Total Yield Value Guide which you can review here.

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