Companies that are disrupting the status quo are often great investments over the long term. But in the short term, they can be volatile. The stock price might race up as investors get excited about the opportunity and then crash when there's perceived weakness by the market.
Lemonade (LMND 0.71%) is a stock that falls into this category. On a Fool Live episode recorded on Feb. 18, 2021, Fool contributors Brian Withers and Jason Hall discuss a viewer's question as to whether the dip in the share price for this insurance tech operator is a buying opportunity for long-term-minded investors.
Brian Withers: I had a question on Lemonade. Somebody was asking about thoughts on Lemonade: Buy on the dip? Well, let me show you. I love Lemonade. First of all, I think long term, it's a buy.
But let me also show you what's going on with the stock. This is one way to look at it. We do the Ycharts thing. This is the stock price over the last, I guess since it IPO'd, and the orange line is the 52-week high. What's happening is you see the 52-week high bumping up, bumping up, bumping up, and then there's this little decrease down at the end. These last few days, it's taken a little bit of a hit. But every time it hits this 52-week high, it drops down a little bit. It's going to be a very volatile stock going forward, and this is one where you just pick a price and get in.
Buy a little bit at a time; don't overweight it. It's going to be highly volatile, but I think over the next 5 and 10 years, it's going to be a fantastic investment.
Jason Hall: Yeah. Again, assuming that their underlying technology corresponds with good underwriting. I continue to throw that caveat out there, because that's something they have to prove to me, is that they are good at underwriting. So far, they're relying on reinsurance. If the underwriting is not good, those costs are going to go up, and they'll pass them on to consumers. But they could be incredibly disruptive, and I'm becoming more and more convinced that they are going to be that disruptor.