Is Lemonade Stock A Buy Or Sell Now? Explaining The Edge And Valuation

seekingalpha2021-09-08

Summary Lemonade is touted as being a disruptive technological insurance provider. I explain the real reason why Lemonade has differentiated itself in this commoditized industry. Lemonade is growing ...

Source Link

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Comments

Timjoe
2021-09-08
Timjoe
Buy sell buy sell

Leave a comment

{"i18n":{"language":"en_US"},"isChannel":false,"data":{"share":"https://ttm.financial/m/news/1179059888?lang=en_US&edition=fundamental","thumbnail":"","is_english":true,"pubTime":"2021-09-08 15:12","share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","id":"1179059888","market":"us","top_or_hot":-1,"title":"Is Lemonade Stock A Buy Or Sell Now? Explaining The Edge And Valuation","media":"seekingalpha","content":"<div>\n<p>Summary\n\nLemonade is touted as being a disruptive technological insurance provider.\nI explain the real reason why Lemonade has differentiated itself in this commoditized industry.\nLemonade is growing ...</p>\n\n<a href=\"https://seekingalpha.com/article/4453920-lemonade-stock-buy-sell-now\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Is Lemonade Stock A Buy Or Sell Now? Explaining The Edge And Valuation</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nIs Lemonade Stock A Buy Or Sell Now? Explaining The Edge And Valuation\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-09-08 15:12 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4453920-lemonade-stock-buy-sell-now><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Summary\n\nLemonade is touted as being a disruptive technological insurance provider.\nI explain the real reason why Lemonade has differentiated itself in this commoditized industry.\nLemonade is growing ...</p>\n\n<a href=\"https://seekingalpha.com/article/4453920-lemonade-stock-buy-sell-now\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"LMND","symbol_name":"Lemonade, Inc.","start_time":0,"source_url":"https://seekingalpha.com/article/4453920-lemonade-stock-buy-sell-now","article_id":"1179059888","we_media_id":null,"thumbnails":[],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=1179059888","pubTimestamp":1631085141,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Summary\n\nLemonade is touted as being a disruptive technological insurance provider.\nI explain the re","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"LMND":"Lemonade, Inc."},"translate_title":"柠檬水股票现在是买还是卖？解释边缘与估价","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"LMND":0.9},"content_text":"Summary\n\nLemonade is touted as being a disruptive technological insurance provider.\nI explain the real reason why Lemonade has differentiated itself in this commoditized industry.\nLemonade is growing rapidly - I explain the accounting details behind the decline in revenues.\nIs Lemonade a buy? I evaluate the current valuation against forward growth estimates.\n\nLemonade, Inc. is likely known by many to be one of the stocks heavily influenced by the #meme craze of recent past. Even after its 50% decline from all-time highs, LMND is still trading over 150% higher than its initial public offering price. In this article, I explain what is likely causing the excitement for LMND’s insurance product offerings, as its giveback feature appears to offer differentiation in what many might have written off as a commoditized industry. I look at the valuation and explain why there may be more upside over the next several years, and reveal the price that I’d be more interested in buying.\nLMND Stock Price\nLMND shareholders have been on for a wild ride. After closing 139% higher than its public offering price, LMND soared yet another 100% before falling around 50% to the current price of around $77 per share.\n\nWith LMND trading around the same price as its first day of trading, is the stock finally a buy?\nIs Lemonade Stock Overvalued?\nWall Street consensus is mixed, with the average analyst rating right down the middle as “neutral.”\n\n(Seeking Alpha)\nThe average price target is incidentally very close to the current stock price. It appears that Wall Street analysts are not that enthusiastic for LMND, in spite of the drop from all-time highs.\nWhat Is Lemonade Stock?\nLMND is an insurance provider that currently sells homeowners, renters, pet, and life insurance products.\n\n(2021 Q2 Shareholder Letter)\nWhat makes LMND different from other insurance providers? If you only took a quick glance, you’d might guess that it is technology or something like that. I have no doubt that LMND has a nice user interface and digital platform, but a quick 5 minute experiment revealed that other renter insurance providers had a very similar signup process. After such an experiment, one would be forgiven for writing off LMND as “just another insurance provider” that will have to compete for business through aggressive advertising.\nThere’s more though. In my view, the key differentiating factor is LMND’s “giveback” policy. The typical insurance provider keeps all premiums not paid out to customers as profit. This inherently incentivizes providers to make it as difficult as possible to get paid for claims. If you're an insurance customer, you'd might be worried that your insurance provider won't want to pay out claims if they occur. LMND, on the other hand, takes a fixed fee (currently 25%) of all premiums, and that’s it. If there are premiums left over after paying out claims, then LMND pays out all excess premiums to charity. This isn’t just a marketing stunt - the idea is that customers do not need to worry about LMND trying to avoid paying out legitimate claims, as LMND is not financially incentivized to do so. This understanding can help improve customer satisfaction and build trust with customers. Historically, LMND’s net loss ratio has been less than 25%, meaning that LMND has made significant and growing contributions to charities.\n\n(2021 Q2 Shareholder Letter)\nNow I can summarize the thesis: LMND aims to become a name brand operator in the insurance space on the backs of both higher customer satisfaction and the feel-good policy of charitable donations. LMND’s giveback policy (in addition to its technology) is what it believes will allow it to take market share in the highly competitive insurance markets.\nInvestors looking at LMND’s recent financial results might be surprised to see that revenues declined 6% year over year (‘YOY’).\n\n(2021 Q2 Shareholder Letter)\nThis is a company trading at 38x forward sales, surely declines shouldn’t be tolerated? Making things more confusing, Wall Street analysts expect growth to accelerate next year:\n\n(Seeking Alpha)\nHere’s what happened. Starting in the third quarter of last year, LMND began using reinsurance policies that enabled it to offload 75% of its premiums - thus reducing revenues. This helps make LMND’s loss ratios more consistent since it effectively locks in a fixed rate on 75% of premiums. If revenues fall, then losses fall as well since LMND is now only exposed to the risk of 25% of premiums. We can see that adjusted gross profit margin (as a ratio of gross earned premiums) has remained more or less steady over the past quarters:\n\n(Chart by Author, data from 2021 Q2 Shareholder Letter)\nI note that the first quarter of 2021 saw increased losses due to the Texas Freeze. In my view, adjusted gross profits are the best metric to use when evaluating the business. LMND grew adjusted gross profits by 82.9% to $12.4 million in the latest quarter:\n\n(Chart by Author, data from 2021 Q2 Shareholder Letter)\nIs Lemonade Stock A Buy, Sell, Or Hold?\nLMND is guiding for gross earned premiums to grow by 78% in the next quarter:\n\n(2021 Q2 Shareholder Letter)\nAdjusted gross profits should grow by relatively the same amount. Using a 19% adjusted gross margin (based on gross earned premium), LMND might earn $54.5 million in adjusted gross profits this year. Based on the current $4.8 billion valuation, LMND is trading at 88x adjusted gross profits. I am typically very uncomfortable paying an equivalent multiple (88x) at the growth rate (78%). What kind of long-term margins could we expect? Insurance peer Hanover Group (THG) earned a23.4% net margin on gross profits in its latest quarter. Perhaps we can assume 40% net margins if LMND can execute on its thesis and become the dominant insurance provider. If we assume 70% growth in 2022, 60% growth in 2023, with this kind of deceleration continuing until 30% growth in 2026, then LMND might produce $404.7 million in adjusted gross profits in 5 years. Using a price to earnings growth ratio (‘PEG’) of 2x, I’d expect LMND to trade around 24x 2026e sales. That would place LMND at a stock price of $158 assuming no dilution - about 100% upside over 5 years for an annualized return of 14.9%. I view LMND to be a higher-risk stock not only due to the current lack of profitability but more importantly due to the fact that it is competing in the highly competitive insurance markets. There is no guarantee that its giveback policy will help it continue to take market share at astonishing rates - and I do wonder what might happen if competitors come out with their own giveback policies. One also shouldn’t underestimate the difficulty for LMND to achieve my projected 40% net margins, as I expect there to be a continued heavy reliance on advertising spend - LMND is not always even in the top 5 of Google search results. For a stock with this kind of risk, I’d prefer a return potential of 20% to 25%, which would imply a stock price of $50 to $62. I recommend patience here.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":880746115,"gmtCreate":1631086860437,"gmtModify":1676530463709,"author":{"id":"3559438972700266","authorId":"3559438972700266","name":"Timjoe","avatar":"https://static.tigerbbs.com/381bdc673d91899ab697655314c737c4","vip":1,"crmLevel":3,"crmLevelSwitch":0,"authorIdStr":"3559438972700266","idStr":"3559438972700266"},"htmlText":"Buy sell buy sell","listText":"Buy sell buy sell","text":"Buy sell buy sell","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/880746115","repostId":1179059888,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":18,"commentSize":1,"repostSize":0,"favoriteSize":1,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/1179059888"}