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Here's Why Lemonade Stock Is Soaring Tuesday

By Matthew Frankel, CFP® - Dec 29, 2020 at 3:42PM

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It's looking like yesterday's fears were a bit overblown.

What happened

The stock market was having a modestly negative day on Tuesday, with all three major averages slightly in the red as of 3:20 p.m. EST. However, insurance tech company Lemonade ( LMND -2.80% ) was a big exception, with shares higher by 11% for the day.

So what

Interestingly, this comes on the heels of a double-digit decline in Lemonade's stock price just the day before, when the major market averages were moving higher.

A glass of lemonade.

Image source: Getty Images.

The most notable news item for Lemonade investors is today's lockup expiration. When stocks go public, insiders and early investors are generally prohibited from selling their shares for a certain period of time known as a lockup period.

Well, Lemonade's biggest lockup period expired Tuesday. About 44 million shares of the company's stock -- roughly 75% of all outstanding shares -- are now eligible to be traded for the first time in the public market. On Monday, there seemed to be investor fears that insiders and early investors would immediately decide to cash out and take their profits, resulting in massive downward pressure on the stock price.

Now what

Today's price action is telling us that the lockup expiration fears were overblown. Since the stock's price is rising on 5.5 million shares of total volume, it appears that there are still more buyers than sellers in the market, and that the insider selling (if any) isn't anything to worry about. While it remains to be seen if early investors or insiders will unload shares, there certainly doesn't seem to be a massive rush for the exits like investors had feared.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Lemonade, Inc. Stock Quote
Lemonade, Inc.
LMND
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