Should I Invest in Lemonade Inc. Stock?

Lemonade is disrupting the insurance industry and has strong growth potential. Whether LMND is sweet or sour depends on your investment goals and risk tolerance.

Lemonade, Inc.
company nameLemonade, Inc.
sectorFinancial Services
industryInsurance—Property & Casualty
address5 Crosby Street, New York, NY, United States
countryUnited States

The AI-powered online insurer Lemonade (LMND) is disrupting the insurance market, making it easier to buy renters’ and homeowners’ insurance, health insurance, and life insurance, as well as policies covering cars and pets’ veterinary care

With younger and first-time insurance buyers as their target audience, LMND offers low prices and easy insurance purchases that take as little as 90 seconds to complete. 

However, this holding company isn’t showing a profit just yet, and its losses are growing. LMND’s stock price is at less than half of its 52-week high. Is this a golden opportunity to buy LMND in a dip, or is LMND a stock to stay away from?

Let’s take a look.  

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What Does Lemonade Do? 

Lemonade is a holding company that seeks to disrupt the insurance industry by selling low-cost insurance that’s easy to purchase online.  

Lemonade has no insurance agents or offices where consumers can buy policies. Instead, consumers can go to the Lemonade website or app to click and buy coverage. The company discourages bogus claims by donating the excess, after costs, to a charity of the buyer’s choice. 

Lemonade renters’ insurance is as inexpensive as $5 a month, and homeowners’ insurance can be had for as little as $25 a month. LMND advertises that it can pay claims in as little as three minutes.  

Powered by artificial intelligence, LMND makes buying insurance easier, processing purchases in 90 seconds. LMND has more than 1.1 million customers, but the company still has a loss ratio of 80 percent. 

Bull Case

LMND has a sweet upside due to several key factors. Among them are the disruptive nature of Lemonade, its young customer base, and the changing nature of consumer behavior.

These give LMND a sunny future and, since its price is down right now, make it a bargain to buy and hold.  

Changing the Industry

Purchasing insurance can be confusing and a lengthy process. Dealing with an insurance agent and coming to an office used to be the norm, but not with Lemonade.

LMND is making the insurance-buying process easier and more transparent, changing how the insurance industry operates.  

Young Clientele

More than 70 percent of Lemonade’s customers are 35 or younger. These customers are likely having their first experience buying insurance, but it likely won’t be their last.

As this population purchases homes and starts families, they’re likely to stick with Lemonade for insurance.  

New Habits

Younger adults are more likely to conduct business online or through apps. Moving from shopping for clothing, electronics, and organic foods online to banking and buying insurance, Millennials enjoy the convenience and ease of Lemonade.

Healthy Growth

While LMND is still taking losses, its growth in the number of customers, year over year, is 50 percent, with a growth rate of customers with in-force premiums at 89 percent.

It's loss ratio is growing smaller, and it has a growing revenue. 

Low Price

Lemonade was trading above $188 per share in January 2021. The massive Texas ice storm a month later sent prices downward, and Lemonade’s price per share hasn’t recovered.

This makes a sub-$70 price per LMND share a bargain to buy and hold, awaiting future growth. 

Bear Case 

There are plenty of reasons to decide that LMND is a lemon of a stock choice. Here are our major concerns about adding Lemonade to your portfolio.

Risk Factor

Lemonade is changing how insurance operates, but it’s still a risky bet right now. LMND isn’t showing a profit, and that should be a caution sign for risk-averse investors.  

High Valuation

As tech and AI-related stocks go, Lemonade is still a high-priced investment option. Investors who want to include growth stocks related to technology and artificial intelligence in their portfolios have plenty of lower-priced options that have higher growth potential.

There are also lower price options for shares of other insurance companies.

LMND is an Insurance Stock, Too

Tech investors should remember that LMND is as much an insurance stock as it is a tech stock. That means natural disasters could send this AI stock downward.

Investing in tech stocks that aren’t related to insurance would be less risky for growth-oriented investors. Investors who want to buy shares of insurance companies could find less risky choices. 

Lemonade Competitors 

Among technology stocks, several AI options have more potential for growth without the risks that are inherent in the insurance industry. Business software powerhouse Salesforce (CRM), chip makers Micron Technologies (MU) and Nvidia (NVID), and any of the FAANG stocks should be considered when adding technology stocks to a portfolio. 

Among insurance stocks, Chubb, Ltd. (CB), MetLife, Inc. (MET), and American International Group (AIG) are all options with strong track records that could perform better than LMND in the short term.

These insurance stocks may be a better fit for risk-averse investors. 

HHippo Holdings Inc.
Change %1.36%
RRoot, Inc.
Change %4.10%
CChubb Limited
Change %0.10%
MMetLife, Inc.
Change %0.47%
AAmerican International Group, I
Change %4.06%

Final Verdict

Is LMND a lemon or Lemonade? Like all investments, there is an element of risk in purchasing shares of LMND for your stock portfolio. Since LMND is a growth stock and isn’t showing a profit yet, buying shares of Lemonade may not be the best choice for investors with a low tolerance for risk. 

Those with an interest in technology stocks can find better options that don’t carry the risks insurance companies do. Likewise, those who want to add shares of insurance companies to their portfolios can find better choices than Lemonade. 

Because of the risk involved in this company, we see Lemonade as a better option as a smaller investment, something to add to a portfolio’s diversification with plenty of growth potential.

It’s not a good choice to be the core investment of a retirement portfolio. LMND has the potential to be Lemonade, generating sweet profits over time.

If your risk tolerance is low and retirement close, LMND could be a lemon.

Should you invest $1,000 in Lemonade right now?

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