What happened
Shares of Lemonade (LMND 1.64%) surged today, even as there was no company-specific news out on the stock and the Nasdaq finished flat. Instead, the "insurtech" stock seemed to benefit from a short squeeze as trading volume spiked. Additionally, good news from Carvana may have also helped spark the Lemonade squeeze.
The stock closed the session up 15.6%.
So what
Trading volume in Lemonade shares was triple their average over the last three months, even though there was no news out on the stock and no major macroeconomic news today.
With 30% of Lemonade's float sold short, that is a strong sign that a short squeeze helped boost the stock.
This morning, Carvana, another growth stock that has fallen sharply from its pandemic-era peak, jumped 40% after the company announced a debt restructuring and a $1 billion share offering, as well as reported better-than-expected earnings.
The news from Carvana and the market's response is the latest evidence that market sentiment is shifting to these beaten-down growth stocks as fears of a recession fade and the broad market continues to gain.
Lemonade, which competes in a much different industry than Carvana as an AI-based insurance provider, is still subject to the same market dynamics, and short sellers seem to be running scared after the Carvana news, especially as Lemonade stock has more than doubled in the last three months without any major catalyst.
Now what
Lemonade stock is up strongly this year, but is still down more than 80% from its earlier peak, showing that it isn't capturing much benefit from the investor excitement around artificial intelligence.
While Lemonade is growing quickly, the company is also reporting wide losses, and investors seem to doubt its ability to turn a profit and disrupt its industry, a similar problem to what Carvana is facing.
Lemonade is set to report second-quarter earnings on Aug. 2, and Wall Street expects revenue to jump 95% to $97.5 million and its loss per share to be roughly flat at $1.03.
The company still has a long way to go to reach profitability, but the stock looks ready to pop, possibly on another short squeeze, if it can top estimates.
