If You Buy LMND Stock Now You Are Going to Pay Much Too Much

6 mins read
If You Buy LMND Stock Now You Are Going to Pay Much Too Much

Insurance company Lemonade (NYSE:LMND) is getting attention for its engaging digital approach to an otherwise low-key industry. LMND stock, however, has soared recently.

Source: Stephanie L Sanchez / Shutterstock.com

The stock’s high-altitude flight is generating excitement.

Now that LMND stock broke through to triple-digit prices, investors will be watching to see how long it can stay there. About three weeks in, it has held. But three weeks is a hardly enough time to truly test the price.

Lemonade was one of the best initial public offerings launched during 2020.

Bulls Embrace LMND Stock

The company went public in July with shares slated to sell in the mid-20s. That price didn’t last long, though. LMND stock hit the market at $50 and rose from there like a helium-filled balloon.

On July 6 – only four days after it reached the market – shares were $96.51. Of course, this brief bubble didn’t last very long and prices of the stock declined back to around $44 in September.

Track the price on a graph and it becomes clear bidders stayed busy trying to push LMND higher. The stock briefly neared $68 in October before rolling back into the $40 range. November saw the beginning of its current rally, which had a floor of around $56. Bulls pushed LMND stock to triple digits in mid-December.

The stock’s peak is $137.30. The first market day of 2021 saw it trading around $111.

Lemonade’s market cap is about 6.4 billion.

A Look at Lemonade

Lemonade is one of several companies whose one-word name has nothing to do with what the business does. Rather, it’s supposed to be charming and memorable.

Based in New York, Lemonade targets the under-35 market with a limited assortment of insurance products. These include rental insurance, homeowners policies and the latest, medical insurance for pets. Future plans include term life insurance policies.

The company’s innovation can be held in the customer’s hand: a smartphone app. Lemonade’s app is designed to be more engaging. And, the firm utilizes artificial intelligence to handle many tasks quickly and more cheaply than with a human employee. This merger of technology and insurance servicing holds important ramifications for the industry.

Meanwhile, the company is being careful where it sells homeowners policies to contain its exposure to natural disasters (like fires or hurricanes).

Lemonade’s basic strategy is to engage younger consumers before they form long-term relationships with other insurers. The route is through lower-priced products, such as rental and pet policies. That gives the company the opportunity to sell them products with higher margins.

Opinions About LMND Stock

My colleagues at InvestorPlace are generally positive about LMND stock. Those with reservations are reacting to the company’s exaggerated valuation.

For example, David Moadel wisely warned readers that Lemonade’s share price was in danger of declining. He recently pulled back the warning in light of the stock’s year-end performance. But that doesn’t mean the concerns he cited were misplaced.

On the other side of the coin, Larry Ramer points to the company’s strategy. Ramer says Lemonade’s rapid growth, as well as its field of potential customers, make it an attractive long-term investment. He also is encouraged by the growing number of millennials buying homes.

The company’s third-quarter report provides additional support for fans of LMND stock. Revenue and earnings per share topped analyst forecasts.

The Bottom Line

Lemonade is an insurance company using technology to gain business mostly in the under-35 segment of potential customers. It offers policies for renters and pet owners, as well as homeowners, and reportedly is preparing to sell life policies.

The company went public over the summer. Bulls pushed the price of LMND stock into triple digits after a few months.

However, the question for investors interested in the stock is whether they should wait for another dip in the price. Despite the enthusiasm for Lemonade shares, I feel this waiting may be best.

Insurance stocks provide stability for a diversified portfolio. Lemonade found an interesting niche. But it’s shares must be worth the money. LMND stock is priced high. Don’t fear missing out on this darling of the market. Put emotions aside and review the details with cold calculation.

On the date of publication, Larry Sullivan did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.

Larry Sullivan is a veteran journalist in Florida who has covered banking and finance for several years. He is a former investing editor at U.S. News & World Report in Washington D.C. and began writing for InvestorPlace in 2020.