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Why Lemonade Stock Dropped Today

By Joe Tenebruso - Mar 4, 2021 at 8:23PM

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Investors are abandoning this former high-flying growth stock. But should they be selling?

What happened 

Shares of Lemonade (LMND 9.96%) fell 7% on Thursday, extending the sharp decline in the artificial intelligence (AI)-powered insurance company's stock price since its fourth-quarter earnings report on Monday.  

So what 

Lemonade's customer count jumped 56% year over year to more than 1 million. It also saw its premium per customer rise by 20%, to $213. Together, this helped to fuel an 87% surge in Lemonade's in force premium (IFP) -- essentially, the aggregate annualized premiums paid by customers with active insurance policies -- to $213 million. 

Moreover, Lemonade's full-year loss ratio declined from 79% in 2019 to 71% in 2020. This important operational metric suggests that Lemonade's profitability is improving as it scales its business. 

A person is pointing to a stock chart that rises sharply and then falls.

Lemonade's shares have shed more than a quarter of their value in recent days. Image source: Getty Images.

However, Lemonade issued somewhat conservative guidance for 2021, including revenue growth of roughly 22%. That pace of expansion may not have been enough to satisfy investors, who had driven the company's shares to a closing price of $132.43 on March 1, up from its initial public offering (IPO) price of $29 on July 2. Since that time, Lemonade's stock price is down 26%. 

Now what 

Despite what the recent performance of its shares would suggest, Lemonade has a bright future. By using artificial intelligence to provide fast online price quotes at competitive rates to prospective customers, Lemonade is rapidly gaining share in the massive U.S. insurance market. The disruptive upstart has tremendous room for further expansion within the homeowners, renters, term life, and pet insurance segments. 

Thus, rather than selling, investors might be better served by taking a longer-term view of Lemonade's growth potential -- and perhaps consider using this recent pullback in its stock price as a chance to pick up some shares at a discount.

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Lemonade, Inc. Stock Quote
Lemonade, Inc.
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