Shares of Lemonade (LMND 2.20%) started Thursday's trading on a sweet note, opening the day 13.9% above Wednesday's closing price. But the buzz didn't last long. 90 minutes later, Lemonade was down 6.8% instead. As of this writing at 12:35 p.m. ET, the stock had settled at a 5.5% price drop. The chief reason for this drama was a spectacular earnings report paired with lofty valuation multiples.
NYSE: LMND
Key Data Points
Lemonade's Q4 was almost too good
In Q4 2025, Lemonade's in-force premium rose 31% year over year to $1.24 billion. Revenues rose faster with a 53% leap to $228 million. Gross profit soared 73% to $111 million.
The bottom line was still printed in red ink, but the net loss shrank from $0.42 to $0.29 per share. The company generated $37 million of free cash flow, up from $27 million in the year-ago period.
It's hard to find a weak metric in this report. The average Wall Street analyst expected a $0.39 loss per share on revenues near $216 million. Management issued next-quarter revenue guidance above the current Street view and set a breakeven target for fiscal year 2027.
But the stock was priced for perfection ahead of the report, trading at 8.9 times trailing sales at Wednesday's market close. That's a lot in the value-oriented sector of property and casualty insurance. The second-highest price-to-sales multiple I see today is Kinsale Capital Group at 4.7. The average P/S ratio among these 45 stocks is 1.4.
Image source: Getty Images.
Wall Street still wanted more
So Lemonade was priced for absolute perfection before this Q4 report. It delivered tremendous financials and the growth story continues with expanding access to European nations and American states. The recently launched discount plan for self-driving Tesla (TSLA 2.97%) cars is too new to make a difference, but management sees it as a core growth driver due to much more relevant risk data.
"As autonomous driving becomes safer and more widely adopted, prices should fall transparently, dynamically," President Shai Wininger said on the earnings call.
The stock market already pays a generous premium for this potentially game-changing approach. Today, Wall Street just wasn't ready to embrace Lemonade's data-driven growth targets.
