Lemonade (NYSE:LMND) is a very young company trying to change an ancient business. Humans have been buying insurance for 260 years. This young company is putting a new twist on the old model. This is not your old school broker situation anymore. The trick is in its tech. It is not a surprise that LMND stock came out of the blocks with a bang.
It struggled a bit before finding footing and today we will argue for long term upside. The trading range is tight and a move is coming. While we don’t know the exact next ticks, this one is gong higher with time.
There are a few winning themes in play now and artificial intelligence (AI) is an important one. It’s at the heart of several other concepts like self-driving and drone applications.
Lemonade makes use of A.I. in order to service its clients. It uses computer smarts to facilitate signups without needing a human intermediaries.
Growth Will Come
The pandemic reminded the world of the importance of the digital revolution. Lemonade stock fits very well into this mantra. Even though it’s young, its growth pace will be rapid. Revenue tripled in 2019 and it’s on a strong pace this year. There is more to come because they almost have the same growth model as Netflix (NASDAQ:NFLX).
The company will break into new markets until they saturate the globe. It is a new model so there is definite risk, but the reward — if they succeed — will be huge. While profits are important, it’s too soon to look for them here. Growth will remain the only metric that matters for at least another year.
Lemonade just reported earnings and Wall Street must have loved the results. LMND stock rallied almost 100% in a month thereafter. It has had a few red days since then, but overall the bulls are in charge.
Shorting it makes little sense so early in the process. The price-to-sales is over 50x, so it’s not cheap, but it’s in line or lower than Shopify (NYSE:SHOP) and Zoom (NASDAQ:ZM), to name two other fast movers.
There Are Extrinsic Risks
This stock is not immune to hiccups, especially from the overall stock market. This week has the potential to be violent on Wall Street.
First, we will get a Federal Reserve meeting, Then it’s quadruple witching Friday. This is when big money makes big moves in order to true up their portfolios. It’s Wall Street jargon to say that caution is warranted. As if we need more excitement, Tesla (NASDAQ:TSLA) will also join the S&P 500.
If the stock market corrects, LMND stock will also fall. Dips will be opportunities for the bulls.
From a trading perspective, if it approaches $80 per share it would make sense to get long. Investors and traders alike could own in for profits going into next year. This, even if it’s likely to be bumpy for the next few weeks on Wall Street.
Own LMND Stock for the Long Term
So far the bulls have been in complete control. This won’t change even if it falls this week or next week. As long as the FED is committed to very loose monetary policies, the buyers have the edge over sellers.
They’ve learned their lesson from 2018. Since then they have propped up asset prices at the expense of the strength of the U.S. dollar. Politicians, on the other hand, are doing all they can to trip up the progress. They chose to go on vacation this summer before they finished the second stimulus package for their constituents. They are still squabbling over how they should do it. Meanwhile, folks on Main Street are screaming for help as businesses revert to lockdowns.
Finally, the vaccine hitting the streets brings psychological relief but won’t make a dent for months. Most of us won’t have the opportunity to get pricked until next summer. At least we are going in the right direction. Social distancing is not good for business. People need to move about, else growth dies.
In short, good business ideas rarely lose and Lemonade sounds like a slam-dunk win. The demand is there and now the tech can deliver it. The digital trend has never been stronger to boot.
The opportunity to own it here even as it seems expensive on paper can be great. I concede that it remains a speculative bet but the upside potential is too huge to pass up.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Nicolas Chahine is the managing director of SellSpreads.com.
