Down Big After Earnings, Is Lemonade a Buy Now?

Lemonade (LMND -0.06%) reported its latest results in early November, disappointing investors with its loss ratio and a surprising acquisition announcement. Since then, shares are down by nearly 30%. In this Fool Live video clip, recorded Nov. 18, Fool.com contributors Matt Frankel and Jason Hall discuss the numbers and why the stock has been hit so hard.

Matt Frankel: This is Lemonade. It is down about 70% from its highs. Jason is going to kick it off and tell us about Lemonade's quarter, why it plunged and things like that and we're all going to give our opinion on it.

Jason Hall: Yeah, it's really interesting. Here's the thing, let's put this out there first. Insurance companies can be a little complicated. I think maybe that's just the best way to put it, when it comes to following their revenues and their earnings, particularly with changes over GAAP accounting over the past several years. When things have to get booked and that thing, whether they're realized or unrealized, it can affect the results. Then you have a company like Lemonade.

The bottom line is they're growing so fast and they're throwing so much money and accelerating the growth. You have to, to a certain extent, just trust management that they are putting metrics in front of you to look at. Paint the picture for long-term, big-picture view. What I wanted to do as a starting point was I just wanted to show those specific numbers that they towers, and talk about what they mean and compare them to the prior-quarter just for some context. In-force premium, right. This is premiums for customers who currently have an insurance product at the end of the quarter, $347 million. Now that was up 84% from last year. I wanted to put that into context for the second quarter. In the second quarter was $297 million. That was a 91% increase.

We're seeing a little bit of a deceleration of growth, but sequentially added $50 million and in-force premiums. That's a real positive number. Total customers, 1.63 million and change. That was 1.2 million and change the prior-quarter. You're seeing really good sequential growth premiums per customer was $246, move that to $254. So growing customers getting more money per customer. Just like a basic understanding any business level, those are really good things to see. 

The other thing too is that from the second quarter to the third quarter, they didn't have any new products launched during that time. They were the same products that were expanding some markets, which is good. But the big thing, guys, and this is the big thing that just happened, let's see if I can find it right here. On Nov. 3, Lemonade Car launched. This was after the end of the third quarter. This is the big thing. This has been a big part of the thesis for a lot of folks that are really interested in Lemonade, is their ability to continue to add products and get into larger and larger markets.

What's the market done during all of this growth? I think you talked about it. Let me pull up another chart here, and just show what the market has done while the company has continued to add users or add customers, grow its base, get higher amounts of dollars from its customers prices. This is from the beginning of the year. I think we can just go all the way back from its IPO. We saw this massive run up at the end of the year and now the stock, like it says, it's basically down 70% from its all-time high.

Thinking through this, a couple of things, I haven't even gotten to the Metromile (MILE) acquisition, but just thinking through this, the only thing that I can really wrap my head around is the market was just extremely exuberant on this company and had expectations that I'm not really sure what the expectations were. Was it just that people fell in love with the story and the idea and then maybe a lot of people realized this is just an insurance company, why are we so excited? We saw it fall from a $9 billion valuation now to $3.5 billion and change or somewhere in that area.