Shares of Lemonade (NYSE:LMND) are taking a hit. LMND stock was down 6.9% ahead of earnings and now it’s seeing more selling pressure after the release. It has investors asking if Lemonade’s stock is a buy.
At the end of the day, that’s all most investors care about: what a company does and if it will make them money.
Lemonade is a young company. It was founded in 2015 and went public in July. The company’s own description does the best job of breaking what it does down (emphasis added):
“Lemonade offers homeowners and renters insurance in the United States, and contents and liability insurance in Germany and the Netherlands, through its full-stack insurance carriers. Powered by artificial intelligence and behavioral economics, Lemonade set out to replace brokers and bureaucracy with bots and machine learning, aiming for zero paperwork and instant everything.”
Its use of AI as a means to innovate and disrupt a well-known space is why investors are attracted to LMND stock. Its disruptive properties are also what makes it the kind of company I like to keep an eye on with my research team. After all, it’s disruptors at the forefront of technological innovations that experience the greatest gains in our tech-obsessed investing world.
But while the initial story behind Lemonade might hold promise, let’s take a look at how its first public earnings report went.
Breaking Down the Quarter
After the close on Aug. 10, Lemonade reported its second-quarter results — the first time it has reported since being a public company.
The company reported a loss of $1.77 per share, which beat expectations by 41 cents. Revenue grew by an impressive 116.7% year-over-year to $29.9 million. This also topped estimates, beating expectations by more than $590,000.
While preparing for the worst due to the novel coronavirus, the company said that, “Less than 1% of our customers opted to defer their payments, while retention rates, click-through rates, and conversion rates all held steady.”
Year-over-year customer count increased by 84% to more than 814,000 in Q2. Premium per customer climbed 17% over the same period, too. Early in the third quarter, Lemonade also launched pet insurance and a bundling option for those with renters or homeowners insurance. We know the secular growth trends in place for pets due to companies like Chewy (NYSE:CHWY) and insurance for this group should be a nice growth area.
In all, it was seemingly a good quarter. A top- and bottom-line beat alongside some improving metrics and new products. In a way, it reminds me of Nio (NYSE:NIO) a bit. But that’s not how the Street is taking it, and guidance is likely playing a role.
Management expects Q3 revenue of $14 million to $15 million and full-year sales of $86 million to $88 million. Both numbers are just fractionally short of consensus estimates, which stand at $15.2 million and $88.96 million, respectively.
I don’t know that I would necessarily call that disappointing. However, without other positive fundamentals — basically, profit and cash flow — investors want better-than-expected sales growth and they didn’t get it. However, the stocks my research team and I have uncovered offer almost guaranteed growth based on their involvement in ground-breaking technological revolutions.
Bottom Line on LMND Stock
At the end of the day, there are definitely some things to like about this name.
For instance, I love the stability that Lemonade has seen in its business despite the shake-up the world has seen from Covid-19. Further, I like that it continues to see strong customer growth with rising premium growth and new growth segments (pets).
Finally, I love the underlying mechanics of the business structure. Using A.I. and machine learning are huge growth catalysts and should help drive efficiency. Lemonade targets millennials, but it’s fast and easy-to-use products should help draw in customers of any age.
There’s a reason those on the back-end of A.I. and machine learning — think Nvidia (NASDAQ:NVDA) — have strong growth too. This industry creates a win-win for companies like Nvidia and Lemonade. It should pave the way to long-term gains.
However, the question shifts from whether LMND stock is a buy to when is it a buy?
Being a recent IPO, the charts don’t give us much to work with. Currently the post-earnings reaction is bearish, with shares falling into the upper $50s. What bulls want to see now is for the August low to hold as support. That low is at $56.70.
Below could trigger a rotation down toward the opening day trading range low near $50. Below that and the selling pressure could accelerate, particularly amid a market-wide correction. Remember, the IPO price on this one was just $29.
Let’s start with $56. A drop below that puts $50 in play, which, as of now, seems like a good spot to consider adding to this name. Remember though, this is a longer-term IPO play and it may not be for everyone.
Although LMND stock shows promise, I want to quickly bring your attention to another growth play. It’s bound for long-term success that’s perhaps even more impressive, only the space it focuses on is mobile communication.
While tech titans like Apple and Samsung helped lay the foundation for our hyper-connected society, this company stands to lead a technological revolution that will forever change communication on a global scale.
As InvestorPlace’s chief technology analyst, I’ve worked feverishly with our veteran research team to identify the best stocks to buy. Over the years, InvestorPlace’s research has helped millions get ahead of the curve. Our subscribers have enjoyed massive gains in tech titans like Apple (19,954% gain) and Intel (12,547% gain) … just to name a few.
Now, I’m ready to share with you the stock behind the next big development in communication. The company has already inked deals with mobile phone titans Apple, Samsung and LG. But it’s bound to become its own king with an approach to mobile interaction that we’ve never seen before.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. Click here to see what Matt has up his sleeve now. As of this writing, Matt did not hold a position in any of the aforementioned securities.