Lemonade (NYSE:LMND) has been a hot stock since it hit the market in July. This is because many investors believe the company will become the Amazon (NASDAQ:AMZN) of insurance. That said, Lemonade has the potential to upend the insurance business as we know it by bringing it completely online. And with this move, LMND stock could deliver triple-digit gains over the next few years.
However, there’s something to be said for patience when it comes to hot new IPOs — and Lemonade stock is no exception. LMND stock has been all the rage in recent weeks, and the firm’s current $67 price tag makes it a little bit expensive considering it’s recent debut on market.
Nonetheless, LMND stock is worth putting on your watch list because this industry disruptor is a buy on any pullbacks. And here’s why.
LMND Stock Is Millennial Insurance
The coveted millennial generation is where just about every business is focused right now. That said, Lemonade seems to have made a connection with this group. The firm sells insurance, mostly for homebuyers and renters. However, it recently rolled out a pet health insurance business as well.
Overall, though, Lemonade sets itself apart from its competitors in two key ways. First, the firm offers bargain, basement pricing. And secondly, it promises complete transparency.
As far as pricing goes, LMND is leveraging artificial intelligence (AI) in order to create a millennial-friendly user experience that doesn’t cost a ton. Chatbots help customers make claims and take out new policies. In turn, this eliminates a lot of overhead for the firm and speaks to millennials in a way they prefer: without actually talking.
Moreover, Lemonade has also managed to pass 75% of the risk on to reinsurers. This significantly limits exposure, and allows the firm to charge a subscription fee.
Collectively, the company is making a name for itself in the insurance sector due to just how different it is. And it could become the “next big thing” for that area.
That said, the people who buy stocks once a big trend goes “mainstream” often buy at the top and suffer big losses. The power of being first is why I’ve dedicated my career to showing folks how to get into the world’s biggest, most revolutionary trends before anyone else. In fact, I am currently looking at one megatrend could be a once-in-a-generation revolution.
And in the insurance space, Lemonade could be just that.
Speaking in a Language Millennials Understand
Not only is Lemonade attracting it’s younger customer base via a user-friendly app and automated services, but the firm is hyper-focused on creating a transparent experience for customers. Over the past few years, insurers have gotten a bad rap for doing everything they can to deny claims. However, Lemonade is aiming to change that with its subscription service.
In turn, the firm has positioned itself as an ally to its customers. And because of it’s fee-based service, Lemonade has no reason to deny or hold up claims. Not only that, but Lemonade has vowed to be as transparent as possible with its customers by letting them know where every bit of their money is going.
Additionally, Lemonade donates any premiums that haven’t been used to cover claims to charity. It’s the first feel-good insurance company, and it’s brilliant.
It’s Not All Roses for Lemonade
With all of that in mind, a lot of investors a chomping at the bit to pick up LMND stock. It’s true, Lemonade has one heck of a long-term growth story — but there are still some obstacles to keep in mind. The most important thing to consider with Lemonade is its relationships with reinsurers in its loss ratio.
The higher an insurer’s loss-ratio, the less profitable they will be. The average property and casualty loss ratio is between 40% and 60%. Meanwhile, Lemonade is expecting its loss ratio in 2020 to be 72%. That said, reinsurers who are assuming the bulk of the risk from Lemonade’s policies are likely expecting the firm to lower that figure as time goes on.
So far, LMND has been doing just that. And in 2018, Lemonade’s loss ratio was 146%.
The Bottom Line on LMND Stock
Overall, Lemonade has a solid business model that speaks to the millennials. The firm is hoping to catch the generation as they buy their first homes, and serve them well into the future. And if the company can be the easy-to-use ally it has portrayed, that’s certainly conceivable.
However, there will certainly be bumps along the way, especially in today’s volatile market. LMND stock is likely to see some pullbacks in the months ahead, and that should give investors a chance to pick up shares at a better entry point.
As I said before, the power of being there first in a stock is very important. In fact, my obsession with getting there first is why I’m the lead analyst for InvestorPlace’s flagship tech investment research advisory called Matt McCall’s Investment Opportunities.
My goal with this research advisory is simple: To show you how to get into the biggest, most transformative investment opportunities ahead of the masses.
It’s designed specifically to help folks on Main Street — not Wall Street. And I’ve got an idea for what could be the next breakthrough in the tech space.
That said, though, getting there first on a pullback in LMND stock could prove to be promising.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. Click here to see what Matt has up his sleeve now. As of this writing, Matt did not hold a position in any of the aforementioned securities.