To a large extent, succeeding in the stock market is about knowing when to take profits. If you’ve made money on your Lemonade (NYSE:LMND) shares, then it’s perfectly reasonable to cash in some or even all of your LMND stock today.
Now, I’m not recommending that investors in Lemonade should panic-sell. Yet, there’s nothing wrong with re-evaluating your long position, or re-considering your decision to buy shares if you don’t already own them.
I issued bearish warnings on LMND stock in early September, and then again in November. But then, I also made a bullish call in December. So, I suppose you could say that I have a love-hate relationship with this stock.
And with a highly influential analyst taking a swipe at Lemonade — even going so far as to impugn the company’s honesty with the shareholders — I’m finding the bear case awfully hard to resist right now.
A Closer Look at LMND Stock
Let’s rewind a little bit. New York-based Lemonade is a global company insure-tech company that had a highly successful initial public offering (IPO) in early July.
Prior to the stock’s public debut, Lemonade had originally indicated a price range of $23 to $26 for LMND stock. Not long afterward, however, the company raised the IPO share price to $29.
LMND stock finally went public on the New York Stock Exchange on July 2, 2020. The shares started trading at $50.06 and jumped by 132% on that first day. Thus, the Lemonade IPO was, at that time, the most successful U.S. IPO of 2020. Just four days later, on July 6, the frenzied buyers pumped LMND stock all the way up to $96.51.
Next, LMND stock would take a roller-coaster ride, bottoming out at $44.11 in late October but then soaring to $188.30 by Jan. 11. But then, there was a swift pullback to $147.74 by Jan. 15. Could there possibly be something amiss with Lemonade?
Insurance for the Tech-Savvy
As mentioned earlier, Lemonade’s business is insure-tech. In an SEC filing, the company seemed to suggest that it would appeal to younger, tech-savvier insurance buyers than stodgier, more traditional insurance firms would:
”Companies built on human brokers and claims agents have many strengths, no doubt, but appealing to millennials and Gen Zers is not chief among them… 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.”
The subtext here is unmistakable: Lemonade is presenting itself as more tech-forward than other insurance firms.
It’s not an unreasonable pitch to make during a time when people are making online, tech-enhanced purchases of cars, houses, and practically everything else you can think of. Why not insurance too?
All of this sounds reasonable enough, until a financial-market influencer comes along and pokes holes in that pitch.
Citron’s Warning
When notable market analyst and short seller Citron Research makes a bearish call on a stock, it typically doesn’t pull any punches. The financial community saw this in action when Citron issued a prediction that LMND stock will go to $100. With that, Citron vowed to rip Lemonade a “new one.”
Moreover, the analytic firm promised to “explain to all the new shareholders what they own.” Not long afterwards, Citron suggested that “the FTC and SEC should look into” Lemonade.
That’s a scathing indictment, to say the least.
Next, Citron’s Andrew Left said about Lemonade, “They’ve been lying to their customers and their shareholders.” Left also declared that Lemonade is “playing on the millennial investors.” On top of all that, Left disputed Lemonade’s claims of bringing new technology to the insurance industry. Left furthermore said that Lemonade’s technology isn’t any different from that of insurers like Progressive (NYSE:PGR) or State Farm.
Does Left’s argument hold water? Surely, Progressive and State Farm have upgraded their online presence at some point. Lemonade isn’t the only insurance company that lets customers comparison-shop and buy online.
And, Lemonade isn’t the only insurance company with a handy app. Other, more capital-rich and established insurance firms have apps, too. So perhaps, Citron’s criticism has merit to it.
The Bottom Line
It’s really up to you to decide whether Citron’s arguments hit the mark. At the very least, we can say that Lemonade isn’t the only tech-enhanced insurance carrier.
Besides, LMND stock has posted huge gains since its IPO. Therefore, it’s not a terrible idea to cash in your shares if you’ve generated some profits on the stock.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
