- Lemonade (LMND) has been in free-fall since its initial public offering (IPO).
- The company isn’t turning a profit, and macroeconomic factors could cause problems for Lemonade.
- Investors should consider simply avoiding an investment in Lemonade now.
New York-based Lemonade (NYSE:LMND) sells homeowners, renters, pets, car and life insurance in the U.S. and Europe. This might sound like a great company to invest in, until you observe the poor performance of LMND stock.
If your contrarian instincts are tempting you to pick up shares of Lemonade now, be sure to conduct your due diligence first. You’ll find that the company isn’t moving in the right direction, financially speaking.
Besides, the current economic conditions don’t favor Lemonade. All in all, you’ll likely find that there are better businesses to invest in today.
What’s Happening With LMND Stock?
Lemonade debuted at $50.06 on the New York Stock Exchange on July 2, 2020. LMND stock rallied for awhile, peaking at at $188.30 on Jan. 12, 2021.
That price action might seem bullish, but it’s not likely based on Lemonade’s fundamentals. Rather, the brief rally was probably based on an initial burst of hype. Plus, it’s possible that Reddit users short-squeezed the stock and then moved on to other targets soon afterward.
By late March 2022, Lemonade’s vision of replacing brokers and bureaucracy with bots and machine learning wasn’t working out too well — or at least, the shareholders were definitely struggling. LMND stock had fallen to $26 and change, leaving the investors desperately hoping to get back to break-even.
This is a textbook example of what can happen when amateur traders pile into a stock after a hype-fueled run-up. Wall Street is a weighing machine in the long term, and the evidence isn’t weighing in favor of Lemonade in 2022.
High Inflation, No Profits
Before anyone thinks about conducting a rescue mission with LMND stock, there are some problems to consider first.
As you probably are well aware by now, inflation is a major issue now. The annualized U.S. consumer price index print of 7.9% is making it difficult for consumers to buy products they don’t immediately need.
It’s also challenging for businesses to sell services that aren’t absolutely necessary. Some folks are saying that the next inflation print could exceed 8% and even approach 9%. Is this really a good time to try to sell pet insurance to people?
Probably not. Also, life insurance isn’t typically at the top of people’s priority lists, as basic necessities like groceries, rent and utility bills tend to come first.
Without a doubt, Lemonade is going to have a tough time selling insurance to people this year. Furthermore, this is happening at the worst possible time for Lemonade as the company is struggling financially.
From full-year 2020 to full-year 2021, Lemonade’s revenue in the “net earned premium” category went down slightly. That category is the lifeblood of Lemonade’s business model.
Worst of all, Lemonade’s net earnings loss nearly doubled from $122.3 million in full-year 2020 to $241.3 in full-year 2021.
What You Can Do Now
LMND stock is on a strong downtrend, and the high-inflation environment won’t make it easy for Lemonade to turn a profit.
Moreover, Lemonade’s earnings profile only worsened from 2020 to 2021.
Therefore, as an investor, this just isn’t the right time to “be a hero” and go bottom-fishing with Lemonade.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
