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Why Shares of Metromile Are Falling Today

By Bram Berkowitz - Jun 10, 2021 at 12:04PM

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There is no obvious reason, but several possibilities might be causing the digital car insurer to decline.

What happened

Shares of the digital car insurer Metromile (MILE) were down more than 13% as of 11:35 a.m. EDT today for no obvious reason.

So what

A few possibilities might be leading to the decline today. For one, it's a technology company, so it might be suffering from news this morning that the U.S. Consumer Price Index (CPI) rose 5% over the last year. Economists were only expecting a rise of 4.7%.

The CPI is a good indicator of inflation, which can hurt fast-growing tech stocks because it increases the cost of running a business, and also results in investors demanding higher returns from companies. But this may not be the reason, because the Nasdaq index, which includes a lot of tech stocks, was slightly higher today as of 11:35 a.m. EDT.

Picture of the bottom of car where the two wheels on the left side are visible.

Image source: Getty Images.

The dip might also have something to do with the popular Reddit forum WallStreetBets, which has been behind the massive surge of meme stocks. There has been some social media chatter about Metromile being a potential WallStreetBets target, so maybe it was -- before retail traders lost interest for the time being.

The stock has swung pretty wildly from just less than $10 when it went public in November 2020, all the way up to $19.30, and now back down to roughly $10.50 per share.

Now what

For what it's worth, I do see potential in Metromile, which went public through a special purpose acquisition company and is backed by the venture capitalist and investor Chamath Palihapitiya.

Unlike traditional car insurers, the company does not charge customers a regular premium each month, but instead charges premiums based on miles driven. With the stock now trading near its bottom, this seems like a good time to get in.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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