Shares of insurance upstart Lemonade (LMND 0.79%) fell 11.3% in September, according to data provided by S&P Global Market Intelligence. Following this most recent tumble, Lemonade is back to plumbing 2021 lows. As of market close on Monday, the stock price has been halved in value year to date, is down 64% from its all-time high posted back in January, and is down nearly 11% from where shares made their publicly traded debut in summer 2020.
There was no specific financial news coming from Lemonade last month that caused the tumble. It did announce new pet insurance designed for puppies and kittens, and many shareholders (and many of Lemonade's insured) are eagerly anticipating the initial rollout of auto insurance coverage by the end of this year.
However, a myriad of factors were the likely reason for this most recent Lemonade stock crash. Economic issues like the 10-year Treasury yield increasing back toward 1.5% (higher interest rates lower the long-term value of a company's future profitability) and worry over possible global fallout linked to Chinese real estate developer China Evergrande Group (OTC: EGRN.Y) perhaps weighed heavy on some investors' minds.
Closer to home, Lemonade is still growing its customer base at a fast pace, but it's also losing money. Reality (specifically, that Lemonade is a long-term bet and isn't going to generate a profit anytime soon) may be settling in for some early shareholders, prompting a sell-off following the second-quarter 2021 earnings update in August.
The insurance industry is old and stodgy, and the story that has developed around Lemonade sounds promising. Its use of machine learning, an app-based product, marketing focused on young people, and its split of profits to be sent to a charity of insureds' choice (which might help discourage insurance fraud among its customers) could help it continue to make inroads into the very large global insurance space.
This is a story that will require time and patience to play out if this insurance upstart is destined for greatness. Expecting too much from the stock this early on was never a fair assumption. And to be fair, precipitous double-digit declines for growth stocks like Lemonade aren't really that uncommon. Remember to invest accordingly.
But armed with nearly $1 billion in cash and investments (as of the end of June), Lemonade could see its business momentum just getting started. Expect continued volatility in the share price itself, though.