Lemonade Stock Isn’t a Lemon but It Isn’t Gold Either

The market has been in turmoil over the past few weeks due to several reasons but Lemonade (NYSE:LMND) has been suffering longer than that. It had a terrible year and the numbers are proof. The company did not get much in the final quarter of the year and LMND stock continued with the free fall. The last time I wrote about LMND stock, it was trading at $38 and I had predicted a consistent fall. It looked overvalued then and wasn’t a buy at such a high price.

LMND stock logo displayed on smartphone laying on top of computer keyboard.
Source: Stephanie L Sanchez / Shutterstock.com

The company sells homeowners, renters, pets, car, and life insurance in Europe and U.S. I do believe that its business model gives a fresh perspective to young buyers and its quick claim settlement service can save folks a lot of time and trouble but if you look at the numbers, something isn’t just right.

A Closer Look at LMND Stock

After going public at $29 per share in 2020, Lemonade hit $70 on the first day itself and this brought a lot of attention towards the company. LMND stock then went to $44 in September 2020 and picked pace in December. The stock went as high as $180 in January and February 2021.

And then it took a dramatic 180 degree turn.

It went below $100 in March 2021 and hit $111 in June. It has been declining since then. The stock has lost more than 70% of its value over the past year and is trading at around $21 today. What brought this dip in the stock? Let’s dig deeper into it.

Profitability Is a Major Issue

Lemonade has a business model that targets the young and the restless. This younger generation prefers the quick and convenient online experience, without having to visit the office or get on the phone. It did help the company grow revenue but profitability doesn’t look anywhere on the horizon. Lemonade has been focusing on growing and expanding the market with unique product offerings but it has left the worries of profitability on the future. This is why the overhead costs are rising and the profit is not able to cover them.

The net losses have gone from $122.3 million to $241.3 million over the past year and this is not a good sign. Further, the company expects a jump in the revenue for 2022 but the adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) losses are expected to remain equally high, in the range of $275 million to $290 million. It reported an adjusted EBITDA loss of $184.2 million in 2021.

The operating losses are piling up and increased 89% in the fourth quarter as compared to the same quarter previous year. It is spending a lot on advertising, and personnel expenses but the expenditure is not contributing towards the profit.

However, I think the losses could be higher than the numbers expected by the company and this could have an impact on LMND stock.

It will not be easy for the company to turn the losses into a surplus and it cannot happen overnight. The company has a lot of work to do if it wants to report impressive numbers. The revenue is certainly growing but so are the expenses and Lemonade needs to find a balance between the two. For now, it looks the company is stuck in the rut with too many product offerings and a high expense ratio.

The Bottom Line on LMND Stock

I am not calling LMND stock a lemon yet. The company has a unique business model and it strives to replace the brokers. It has also made the insurance buying and claim settlement process much quicker and easier. LMND stock does not look like a buy for the near term. But if you have a high-risk appetite and a long-term vision, this stock could be a winner.

However, do not expect returns in the near term. It will take a lot of time for LMND stock to recover and start the upward journey. There are several other long-term buys you can consider.

On the date of publication, Vandita Jadeja did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Vandita Jadeja is a CPA and a freelance financial copywriter who loves to read and write about stocks. She believes in buying and holding for long term gains. Her knowledge of words and numbers helps her write clear stock analysis.


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