Please ensure Javascript is enabled for purposes of website accessibility

Why Lemonade Stock Dropped Today

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

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Lemonade, Inc. Stock Quote
Lemonade, Inc.
LMND
$22.97 (9.96%) $2.08

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
356%
 
S&P 500 Returns
124%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/29/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.