Lemonade is Having a Bit of an Identity Crisis

LMND stock - Lemonade is Having a Bit of an Identity Crisis

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While moving positively against the grain is usually a cause for celebration, for insurance technology platform Lemonade (NYSE:LMND), the circumstance drew some eyebrows. During the April 12 trading session, LMND stock increased 1%, which really wouldn’t be notable were it not for the fact that the major indices flashed slightly red. Increasingly, investors have been focused on negative news items like worsening inflation.

On surface level, though, it’s understandable why LMND stock represented the bullish outlier against the messy backdrop. As an insurance firm, the core business is all about risk management. Generally speaking, companies within the sector perform relatively well during market troubles, in part because they’re tied to relevant protections and also due to conservative business practices.

Indeed, the basic equation for companies like Lemonade is simple: charge more for the services you offer than what you pay out in claims. But aside from this one-off event, it’s this framework that Lemonade has had trouble actualizing. If you look at the company’s financials, you’ll discover quickly that net losses have been expanding since at least 2018.

Of course, insurance firms usually aim for net income, which is a positive figure. Therefore, the fundamental nature of LMND stock is flawed for the time being; unless, that is, Lemonade isn’t an insurance firm that uses technology but rather a technology firm that provides insurance products.

This identity crisis poses problems since if the latter is true, that LMND stock went against the grain on April 12 isn’t something that’s likely to be sustainable since tech companies face myriad risks, including inflation, the geopolitical flashpoint in Eastern Europe and overall recession worries.

However, if the former is true, then Lemonade needs to quickly get its act together and start printing the financial metrics that are more in line with insurance company peers: a boring business but one that’s reasonably reliable and stable.

On the date of publication, Josh Enomoto 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.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.


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