Lemonade Inc. (NYSE: LMND) Shares Double on IPO Day: Believe the Hype?

Monday, July 6, 2020 | Sean Sechler
Lemonade Inc. (NYSE:LMND) Shares Double on IPO Day: Believe the Hype?

When was the last time you heard an insurance company described as “cutting-edge”? Insurance stocks are known for being steady and safe for investors since they typically provide gradual returns along with dividends over the long run. However, a new tech-centric insurance company that debuted with an Initial Public Offering (IPO) last week doubled in value on its first day of trading and is attracting a lot of attention.

Lemonade Inc. (NYSE:LMND) debuted last week at an IPO price of $29 per share and rocketed 139% higher during its first trading session. The stock is up big on its second trading day too and has been the most successful IPO this year. Lemonade uses artificial intelligence and big data to make the processes of buying insurance and filing insurance claims more efficient and user-friendly. Investors are recognizing the potential that this company has to disrupt the insurance industry, but has the stock gone up too far too fast? Let’s take a deeper look at Lemonade Inc. and determine whether or not investors should believe the hype.

Next-Gen Technology

Part of Lemonade’s IPO success has to do with the bullish momentum in the overall market, but you can’t deny the fact that this company is creating something unique. The insurance industry in the U.S. has been a huge marketplace for decades, but many of the legacy IT systems that these companies use slows them down and detracts from the client experience. Lemonade’s founders recognized the opportunity to introduce next-gen technology into the industry and took action.

The idea behind Lemonade’s business is to use artificial intelligence to replace brokers entirely and allow homeowners and renters to get insurance without having to spend time filling out paperwork or dealing with salesmen. With Lemonade’s AI Maya, customers engage with a virtual assistant that helps to collect information, gather insurance quotes, and process payments. The company claims that it will take roughly 2 minutes to get a renters insurance quote and 3 minutes for homeowners insurance quotes. Claims can be paid out in as little as 3 seconds, which is blazing-fast for the industry and something that traditional insurance companies can not offer at this time. Lemonade offers policies on a monthly subscription basis and customers can pay as little as $5 a month for coverage.

Targeting Younger Generations

The ideal target market for Lemonade at this point is younger generations that grew up using smartphones. We know that traditional insurance companies can be slow and tedious to deal with, which is why Lemonade has built a business model based on attracting millennials and Generation Z. The company stated that 70% of its customers are under the age of 35, which speaks volumes about who is interested in Lemonade at this time.

By going for first-time customers with little assets, the company has been able to grow revenue figures nicely from $22.5 million in 2018 to $67.3 million in 2019. With that said, Lemonade will have to work hard to capture older customers that maybe aren’t as comfortable handling major financial tasks using their digital devices. If the company is eventually able to find a way to tap into older age groups, the sky is the limit. 

A Good Cause

Another way that Lemonade offers a unique business model is by including a social advocacy component into every transaction. In fact, the company is set up as a public benefit corporation, or B corp. When a new customer signs up for Lemonade, they name a charitable organization in which the company donates money from residual premiums to. This initiative is known as “Giveback” and could absolutely work in the company’s favor as it grows.

Traditional insurance companies profit by keeping any money that isn’t paid out in claims. With Lemonade, the company charges a fixed fee and uses the rest of the money to pay claims. Any leftover money remaining after the claims have been paid goes to charitable causes. We know that younger generations tend to be interested in supporting positive social change, which is why this aspect of Lemonade’s business seems to fit perfectly into its business model at this time. 

Be Careful

This stock is absolutely the most impressive IPO of the year thus far, but that doesn’t mean this type of market performance is sustainable. While Lemonade offers a unique business model and a cutting-edge application that has the potential to disrupt the insurance industry, new investors should be extra careful if they are looking to buy at current price levels.

Keep in mind that new IPOs are known to be quite volatile during the first few weeks of trading. We simply don’t know that much about this company’s financials due to its limited operating history, which means that there could be significant risk in the near-term based on its current valuation. Sitting on the sidelines until a more attractive entry point presents itself is probably the right call for this red-hot stock. 

Featured Article: What is the definition of a trade war?

7 Precious Metals Stocks That Will Keep Your Portfolio On Trend

The growing acceptance of cryptocurrency is beginning to make mainstream investors rethink their idea of “store of value.” The trendy possibilities of Bitcoin, Ethereum, and any of the dozens of altcoins that exist on the blockchain are trending like the latest fashion.

However, the thing about fashion is that the more things change the more things stay the same. Just like the simple black dress that won’t go out of fashion, the same can be said for precious metals stocks. One way to think about it would be to say that the existence of a growing cryptocurrency market doesn’t change the value of precious metals.

Precious metals have long been known to be a safe-haven asset in times of market volatility and economic crisis. In fact, during the Covid-19 pandemic, gold prices surged about 30% breaking the $2,000 mark for the first time in its history. This was at a time when the prices of many cryptocurrencies were falling.

And precious metals have also been seen as a hedge against inflation, which seems like more of a certainty with the Federal Reserve’s pledge to keep interest rates at historically low rates into 2023.

Whether you’re looking to take your first steps at crafting a precious metals portfolio or if you want to fine-tune the one you have, we believe this special presentation is a good place to start your research. We’ve identified seven precious metals stocks that look to retain their allure in 2021.

View the "7 Precious Metals Stocks That Will Keep Your Portfolio On Trend".

Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Lemonade (LMND)0.9$104.75-1.3%N/A-27.93Hold$88.57
Compare These Stocks  Add These Stocks to My Watchlist 

MarketBeat - Stock Market News and Research Tools logo

MarketBeat empowers individual investors to make better trading decisions by providing real-time financial data and objective market analysis. Whether you’re looking for analyst ratings, corporate buybacks, dividends, earnings, economic reports, financials, insider trades, IPOs, SEC filings or stock splits, MarketBeat has the objective information you need to analyze any stock. Learn more about MarketBeat.

MarketBeat is accredited by the Better Business Bureau

© American Consumer News, LLC dba MarketBeat® 2010-2021. All rights reserved.
326 E 8th St #105, Sioux Falls, SD 57103 | U.S. Based Support Team at [email protected] | (844) 978-6257
MarketBeat does not provide personalized financial advice and does not issue recommendations or offers to buy stock or sell any security.

Our Accessibility Statement | Terms of Service | Do Not Sell My Information

© 2021 Market data provided is at least 10-minutes delayed and hosted by Barchart Solutions. Information is provided 'as-is' and solely for informational purposes, not for trading purposes or advice, and is delayed. To see all exchange delays and terms of use please see disclaimer. Fundamental company data provided by Zacks Investment Research. As a bonus to opt-ing into our email newsletters, you will also get a free subscription to the Liberty Through Wealth e-newsletter. You can opt out at any time.