Compared to 2020 and 2021, it's evident that today Wall Street has soured on what were some of the most exciting and innovative tech stocks. Take insurance disruptor Lemonade (LMND -2.29%), for example, whose shares are down a whopping 93% from their all-time high price of $183.26 reached in January 2021. The stock skyrocketed in the first six months after it went public, but it's a different story now. 

If you invested $1,000 in Lemonade at its initial public offering in July 2020, you'd be sitting on a balance of just $187 right now, translating to a loss of more than 81%. For comparison's sake, the tech-heavy Nasdaq Composite index is up 23% during the same time. What's been going on with this fintech stock in recent years? 

Rapid growth without profits 

It's difficult to understate Lemonade's monster growth in recent years. Between 2019 and 2022, revenue jumped from $67 million to $257 million, customers increased from 643,000 to 1.8 million, and the premium per customer grew from $177 to $346. These are the kind of remarkable gains that early investors were drawn to when Lemonade went public. 

Another key factor that made Lemonade a darling on Wall Street at the start was its innovative business model. Instead of relying on traditional brick-and-mortar offices and sales agents to push insurance products, this company utilizes artificial intelligence and machine learning in a completely digital offering to underwrite policies and approve and pay out claims. The user experience is supposed to be outstanding and frictionless. Management touts having a Net Promoter Score, a reflection of customer satisfaction, in the same ballpark as Apple and Tesla. 

However, like many companies that are fully focused on achieving hyper growth, Lemonade has yet to turn a profit. In theory, having no physical footprint should be a benefit, but this hasn't been shown in the numbers so far. Last year, the business posted a net loss of $298 million, higher than 2021's figure. And this was despite revenue doubling year over year. 

For 2023, management forecasts revenue to grow 47% at the midpoint. But it also sees the adjusted EBITDA (earnings before taxes, interest, depreciation, and amortization) loss widening. A potential plus, however, is that Lemonade's five insurance products (renters, homeowners, car, pet, and life) give it a greater opportunity to cross-sell to existing customers, while further penetrating the massive industry. 

Investors should think twice 

With the stock down so much, Lemonade now trades at a price-to-sales multiple of 3.6, which is about as cheap as it's been since going public. This signals that the market's pessimism surrounding the company has hardly ever been higher. But despite what appears to be an attractive valuation, Lemonade is still more expensive than some major incumbents in the insurance industry, such as Progressive and Allstate. This could be a reflection of Lemonade's outsized potential growth opportunity and heavy focus on utilizing technology in its business model. 

Ultimately, it's up to investors to decide if Lemonade's disruptive potential and promise of rapid gains outweigh its lack of consistent profitability. This is an even more important point to consider in today's economic environment, when funding costs are higher than at any time during the past decade and investors are prioritizing positive net income. For what it's worth, Lemonade had just over $1 billion of cash, cash equivalents, and investments on its balance sheet as of Dec. 31, with zero debt. This might be enough to give the business a significant runway to operate at a loss for the foreseeable future. 

But until management can get losses under control and show a clear path to profits, I won't even begin to think about owning the stock. For some investors, though, the cheap valuation might be too hard to pass up right now.