What happened
The stock market was having its worst day since October 2020 on Monday morning, with all three major averages down by more than 2%. However, insurance technology companies Lemonade (LMND 1.89%) and Metromile (MILE) are dramatically underperforming the market. As of 10:15 a.m. ET, Lemonade and Metromile shares were lower by 10% and 11%, respectively.
So what
There isn't any company-specific news causing these stocks to decline, and neither company is set to report earnings for another couple of weeks. Rather, the recent sell-off in stocks has disproportionately affected speculative growth stocks, and that is certainly the case on Monday as well. The decline seems to be fueled by general interest rate and inflation fears (rising rates are almost always a negative catalyst for growth stocks), and investors are anxiously awaiting the Federal Reserve meeting set to take place this week.
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The decline might appear especially puzzling in Metromile's case. The stock currently has a market cap of just $172 million after today's decline -- less than the $259 million of cash and equivalents on its balance sheet. However, it's important to keep in mind that Metromile has agreed to be acquired by Lemonade in an all-cash transaction, so it's wise to expect the two insurance stocks to trade in tandem until the deal is finalized.
Now what
In all, Lemonade and Metromile are down by 86% and 93% from their all-time highs, respectively. However, it's important for investors to realize that there hasn't been much of a change in Lemonade's business to justify such a sharp decline.
For patient long-term investors, however, this massive and painful sell-off could be an excellent opportunity. Lemonade and Metromile trade for a combined market cap of less than $1.8 billion at the current share prices, despite having a total of about $1.48 billion in cash and equivalents between them and no long-term debt. In a nutshell, by purchasing Lemonade shares right now, you're effectively buying the actual business operations of the two insurance disruptors for just over $300 million. If Lemonade can replicate its success in its new auto insurance product, this could end up being an absolute steal.
