New York-based Lemonade (NYSE:LMND) is a global company that’s quickly becoming the poster child of what’s known as “insure-tech.” There’s been plenty of buzz surrounding LMND stock since its highly successful initial public offering (IPO) in early July.
Believe it or not, the Lemonade IPO was, at that time, the most successful U.S. IPO of 2020. As evidence of this, the LMND stock price literally doubled on its first day of public trading.
Today, I’m going to eat some humble pie as I issued bearish warnings on LMND stock in early September, and then again in November.
The LMND share price rocketed upward since the publication of those articles. I’m not too proud to admit that I was 100% wrong about LMND stock. Even at a higher price now, the stock is likely destined for further upside.
A Closer Look at LMND Stock
In reality, the vast majority of amateur retail traders never really had a chance to get these shares at an ultra-low price. Lemonade had originally indicated a price range of $23 to $26 for LMND stock, but not long afterward, the company raised the IPO share price to $29.
LMND stock debuted on the New York Stock Exchange on July 2 at $50.06 and, unbelievably, jumped by 132% in its first day of trading. A mere four days later, on July 6, the bidders pumped the stock all the way up to $96.51.
A share-price dump took place after that, with LMND stock bottoming out at $44.11. Without a doubt, the skeptics (myself included) braced for further price declines.
Yet, a sharp rebound ensued, with LMND stock ramping up to $106.51 on Dec. 18. With the $100 barrier shattered, it’s off to the races as the bulls are now firmly in control of the price action.
Targeting the Young
Like it or hate it, there’s no denying that Lemonade is a truly different type of insurance company.
This company seeks to differentiate itself from the stodgy old insurance firms of yesteryear. Clearly, Lemonade isn’t afraid to target smartphone-centric, app-wielding millennials and zoomers.
In an SEC filing, the company appears unafraid to parlay the generational divide to its advantage:
“We bring insurance to the mobile-first, digitally-native world… Our playful bots make for a fun and intuitive interaction at any age, all the more so to a generation that grew up with a smartphone.”
Could human brokers and claims agents soon become a relic of the past? With 70% of its customers being under the age of 35, Lemonade’s bold bet is that emerging generations of insurance buyers will dominate the insurance market in the not-too-distant future.
The Covid-19 Factor
LMND stock holders are also likely wagering on a permanent shift in consumers’ insurance buying patterns. We’re not just talking about younger consumers asserting their buying preferences.
Conventional insurance companies must also factor in the changes brought on by the onset of Covid-19. The continuing digitization of the insurance market is a real threat to Lemonade’s competitors.
It’s surely not a coincidence that during a global pandemic, Lemonade’s business thrived. Indeed, Lemonade’s total customer count for 2020’s third quarter increased by 67% compared to the third quarter of 2019.
Other third-quarter 2020 stats confirm the positive trend. For instance, there was a 183% year-over-year improvement in adjusted gross profit. Additionally, Lemonade’s gross earned premium increased by 104% year-over-year.
And by the way, all of this took place during a global pandemic as well as California’s most destructive fire season ever.
Even with tail risks starkly present, a lockdown-induced shift toward remote insurance-buying modalities evidently provided a strong and enduring tailwind for Lemonade.
The Bottom Line
So, it seems that my previous bearish calls on LMND stock were off the mark. It’s time to admit that Lemonade is truly a “right place, right time” type of business.
The insurance market is changing, and informed investors must change their strategies. A stake in LMND stock is a reasonable acknowledgment that Lemonade’s vision is not only bold, but entirely visionary.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.
