What happened
Shares of Lemonade (LMND 1.44%) were climbing for the second session in a row on Monday as better-than-expected results in its first-quarter earnings report helped fuel an apparent short squeeze, following last week's gains.
The stock closed up 11.1% on Monday after jumping 27% last Thursday and gaining another 3% on Friday.
So what
Lemonade delivered better-than-expected results in its first-quarter report, showing strong growth in customer count and in-force premium. And its revenue also beat the analyst consensus.
Today, the stock seemed to move higher as bears tried to cover their bets. As of mid-April, 26% of the float had been sold short, and trading volume today was more than double its average volume over the last three months, a good indication that short-sellers were closing out their bets that the stock would fall.
Now what
Lemonade, which is trying to disrupt the insurance business with an artificial intelligence (AI) model, has been a laggard on the market since its initial public offering in 2020. The stock is still down roughly 90% from its peak in 2021, collapsing like a number of other high-priced growth stocks during that time.
However, with its valuation seeming more reasonable, Lemonade deserves a closer look.
The business continues to grow quickly as it brings in new customers, expands into new geographies, and adds new insurance categories. Revenue more than doubled in the first quarter, and it made progress in its gross loss ratio, or the percentage of premiums that get paid out as claims, which fell from 90% to 87%.
While it is still a long way from profitability, the business should scale up as revenue grows, and its focus on AI should make it attractive to some investors, with AI stocks becoming popular following the release of ChatGPT.
With the share price still low, the stock could have more upside, especially given the impact of short-sellers.
