- Lemonade < LMND> could possibly transform the insurance market as we know it.
- Yet, the company and its stock remain unappreciated on Wall Street.
- Investors should consider the potential future value of Lemonade instead of focusing on the currently negative sentiment.
New York-based Lemonade < NYSE:LMND> offers renters’, homeowners’, life and even pet insurance. There is certainly no guarantee that LMND stock will appreciate in value, but there appears to be a ground-floor opportunity to invest in a truly disruptive company.
A decade from now, Lemonade will either be a mainstay in the insurance business or completely bankrupt. Investing in Lemonade is truly an all-or-nothing proposition. Can you handle the risk?
Judging by the price action of LMND stock, it appears that not too many traders are willing to stand by the company for the long-term. That is a shame, as Lemonade could eventually redefine the insurance business to the benefit of customers, as well as the shareholders.
| LMND | Lemonade, Inc. | $24.53 |
Taking us back to the beginning, Lemonade debuted at $50.06 on the New York Stock Exchange on July 2, 2020. There was a hype phase, which was probably precipitated by the advent of the meme-stock trade in early 2020.
As Reddit traders ran wild on Wall Street, LMND stock topped out on Feb. 12, 2021, at $168.44. Not to be the bearer of bad news, but we won't likely see that price again for quite a while, if at all.
After the hype phase passed, the Lemonade share price sank into the $20s. Lately, Lemonade's loyal investors might wonder whether the suffering will ever end.
To make matters worse, the share-price decline might seem justified by Lemonade's lack of profitability. To break down the numbers, Lemonade’s net earnings loss increased from $122.3 million in full-year 2020 to $241.3 million in full-year 2021.
That is a hard pill for data-driven investors to swallow. In this light, investing in LMND stock is risky, even near its 52-week low.
To hold shares of Lemonade with confidence, you'll need a strong stomach and, most importantly, a belief that Lemonade's artificial intelligence (AI) driven insurance business can transform an entire industry.
It is an industry that is resistant to disruption -- but just maybe disruption is exactly what is needed now.
Getting People to Make the SwitchTo change the world, you have to change one mind at a time. Lemonade is achieving this by bringing new customers into the fold, including some reluctant ones:
"About 90% of our current customers said that they were not switching to Lemonade from another carrier. We are well positioned to grow our customer base by continuing to attract first time buyers, an underserved population replenishing every year."
If you've ever held a sales job, then you should be able to appreciate how difficult it is to get people to switch brands. How, then, did Lemonade sell people on its vision of replacing brokers and bureaucracy with bots and machine learning?
Mainly, it is a result of Lemonade's willingness to court young, millennial and Generation Z insurance customers. Young insurance shoppers are probably more willing to try something new, especially since they haven't spent half a century with a traditional insurance broker.
Lemonade's focus on apps and technology probably also appeals to younger insurance customers. Furthermore, Lemonade's AI can apparently help clients reduce their costs, so that is likely a strong selling point for millennial and zoomer customers.
Most of all, Lemonade emphasizes giving back. This could appeal to younger, more mindful customers. For example, Lemonade provides a Giveback feature. With this, the company aims "to donate leftover money to causes our customers care about."
Also in the giving back category, Lemonade recently formed the Lemonade Crypto Climate Coalition. With this, the company plans to build and distribute "at-cost, instantaneous, parametric weather insurance to subsistence farmers and livestock keepers in emerging markets."
What You Can Do NowMake no mistake about it: holding LMND stock could lead to serious capital loss. It is a speculative bet no matter how you spin it.
On the other hand, Lemonade is using technology to create a better experience for insurance buyers. Plus, the company appears to be strongly committed to giving back.
Millennials and zoomers comprise a powerful client demographic segment. They have the power to radically change the insurance market. Will they choose Lemonade as their insurance carrier?
Only time will tell. Still, it is exciting to consider how much Lemonade could alter the landscape of the insurance business -- and how far LMND stock might go if it is still around in a decade.
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On the date of publication, David Moadel 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.
David Moadel has provided compelling content - and crossed the occasional line - on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.
LMND shares were trading at $23.67 per share on Tuesday afternoon, down $0.33 (-1.37%). Year-to-date, LMND has declined -43.79%, versus a -7.35% rise in the benchmark S&P 500 index during the same period.
About the Author: David Moadel
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.
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