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2 Tech Stocks With 96% to 140% Upside, According to Wall Street

By Trevor Jennewine – Aug 13, 2021 at 6:17AM

Key Points

  • Wall Street's price targets can be a good place to start your research, but investors should always consider the big picture.
  • Coinbase helps its clients participate in the cryptoeconomy, and Lemonade is modernizing insurance with big data and artificial intelligence.

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Analysts see big gains for Coinbase and Lemonade shareholders.

As a long-term investor, I tend to ignore near-term price targets. Instead, I look for stocks I can hold for at least five years, and preferably longer if my investment thesis remains intact. That being said, price targets can be a good place to find inspiration, and there's no harm in glancing at these figures -- provided you do your own research, too.

With that in mind, Wall Street analysts see significant upside for Coinbase Global (COIN -6.00%) and Lemonade (LMND -1.39%). Let's look at both of these tech stocks.

Toy bull positioned near financial charts.

Image source: Getty Images

Coinbase Global: 140% implied upside

Coinbase helps its clients participate in the cryptoeconomy. Its platform offers a range of products to 68 million users, including retail investors, financial institutions, and ecosystem partners. Of course, brokerage services are the core business, but there's a lot more to Coinbase.

For instance, its platform also allows individuals to send, spend, borrow, and lend cryptocurrency, and it offers a cold storage solution to institutional clients. Coinbase also provides blockchain analytics tools to law enforcement, application-building tools to developers, and payment processing tools to merchants.

As of the most recent quarter, Coinbase had $180 billion in assets on its platform, or 11.2% of all crypto assets, making it the market leader. That immense scale demonstrates the company's trusted brand, and it creates an opportunity for further monetization. With those advantages in mind, analysts at D.A. Davidson value Coinbase stock at $650 per share, a 140% premium to its current price.

Financially, Coinbase is growing at a shocking pace -- but investors should consider these metrics with caution. Transaction fees comprise the vast majority of revenue, and those fees depend on trading volume, which has historically been highly correlated with the price of bitcoin and the volatility of crypto assets. And so far this year, the crypto market has been incredibly volatile, juicing monthly transacting users and revenue.

Metric

Q2 2020 (TTM)

Q2 2021 (TTM)

CAGR

Monthly transacting users

1.5 million

8.8 million

487%

Revenue

$633.8 million

$4.9 billion

678%

Data source: Coinbase SEC filings. TTM = trailing-12-months. CAGR = compound annual growth rates.

Before buying Coinbase stock, investors should ask themselves one question: Is cryptocurrency here to stay? If you think the answer is no, forget this stock. But if you see a future for cryptocurrency -- either as a store of value or a transactional medium -- then Coinbase could be a good way to tap into that trend.

Woman interacting with a digital cortex, symbolizing artificial intelligence.

Image source: Getty Images

Lemonade: 96% implied upside

Lemonade is a tech company that's disrupting the $5 trillion insurance industry. Specifically, the company uses big data and artificial intelligence to manage many aspects of its business, from quantifying risk and underwriting policies to processing claims and engaging clients.

This differentiates it from traditional insurance providers, the vast majority of which rely on human brokers and agents. More to the point, many of today's industry leaders were founded over a century ago, long before the digital era, and their businesses simply weren't built to collect and deploy the types of data captured by Lemonade.

This advantage should make Lemonade's platform faster, cheaper, and more precise over time, creating a flywheel effect that strengthens as the company adds more clients. With that in mind, analysts at Piper Sandler value Lemonade at $163 per share, representing 96% upside compared to its current price.

Investors shouldn't fool themselves -- disrupting a well-established industry is rarely easy, and Lemonade has a long road ahead. However, the company's early financial results show promise. In Q2 2021, in-force premium (i.e. the annualized sum of customer premiums) reached $296.8 million, up 312% from Q2 2019. Over the same period, Lemonade has added new customers quickly, driving strong growth in gross profit.

Metric

Q2 2019 (TTM)

Q2 2021 (TTM)

CAGR

Customers

442,752

1.2 million

65%

Gross profit

$5.7 million

$26.5 million

116%

Data source: Lemonade SEC filings. TTM = trailing-12-months. CAGR = compound annual growth rate.

Looking ahead, investors should pay attention to Lemonade's gross loss ratio (i.e. the percentage of premiums paid out in claims). This metric assesses how effectively an insurance company estimates risk and prices policies. For reference, Lemonade aims to keep its average loss ratio below 75% on a multi-year basis. If that number starts trending the wrong direction, it could be a red flag.

Trevor Jennewine owns shares of Lemonade, Inc. The Motley Fool owns shares of and recommends Bitcoin and Lemonade, Inc. The Motley Fool has a disclosure policy.

Stocks Mentioned

Coinbase Global Stock Quote
Coinbase Global
COIN
$40.24 (-6.00%) $-2.57
Lemonade Stock Quote
Lemonade
LMND
$17.75 (-1.39%) $0.25
Bitcoin Stock Quote
Bitcoin
BTC
$17,166.05 (-0.25%) $-43.20

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

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