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Lemonade (LMND) stock forecast: 2021 and beyond

By Ryan Hogg

Edited by Jekaterina Drozdovica

13:13, 8 November 2021

Lemonade stock forecast
Source: Shutterstock

New York City-headquartered insurance company Lemonade has been stuck in a holding pattern since heavy volatility in the first quarter of 2021. But an early November surge in the Lemonade (LMND) share price, which has grown by 18% within a week, is giving investors renewed cause for optimism.

Lemonade offers insurance rental, homeowner pet and life insurance to customers via an automated platform. The company now has a policy in each of the 50 states of the US, as well as the Netherlands, Germany and France, with a continuing theme of plans for expansion. 

Lemonade is a B Corporation, which means it has a legal obligation to consider the impact of business decisions on its workers, the wider community and the environment, to name a few.

Lemonade stock forecast

 

Lemonade stock analysis

Since floating on the NYSE in July 2020, the Lemonade share value has experienced severe peaks and valleys, though recent performance presents a sustained phase of the latter. The company’s debut led shares to an increase of 135% on the company’s first day of trading to $65.

Lemonade found itself in the bittersweet territory of a short squeeze rally at the beginning of 2021, which eventually forced the Lemonade share price up to $163.93. In May 2021, prices bottomed out as the company posted its -121% gross-loss ratio, which was compounded by the fallout from the short squeeze to push shares to $60.17 on 12 May.

The second-quarter earnings release caused the Lemonade share value to tumble by more than 11% in a day on 5 August, which began a brutal two-week sequence that saw the share briefly bottom out to $67.55 on 19 August.

 Lemonade stock chart

But the most recent resurgence comes in good time prior to earnings data, which is scheduled for release on 9 November, and may finally be the beginning of Lemonade’s climb away from its debut share price. 

The company remains in buy territory, according to TradingView, with a Relative Strength Index (RSI) of 60.07 – meaning its planned launch of environment-themed car insurance, Lemonade Car, has yet to leave the stock in overbought territory. The company now sits comfortably above first support (S1) of $58.73, and its pivot point of 64.18.

Stripping out the effects of January 2021’s short squeeze, third resistance (R3) of $81.96 may be an attainable resistance for the company dependent on good Lemonade shares news, dependent on good Q3 2021 earnings results and continued success in Lemonade Car.

Hopes for AI to spearhead growth

Lemonade floated in a flood of excitement in June 2020, primarily on the back of an operating system dependent on artificial intelligence (AI).

The new automated operations have allowed Lemonade to grow at scale prior to listing publicly, yet with minimal expense on resources. The firm uses machine learning, with two bots – AI Jim and AI Maya – that are able to process insurance claims in a matter of minutes.

In January 2020, the company reported that throughout 2019, the bot pair handled more than 240,000 customer conversations, while AI Jim alone handled 20,00 insurance claims and paid out close to $2.5m.

The use of AI in claims processing should be regarded as a pre-emptive move that will soon become a cornerstone of the insurance industry. Research by McKinsey & Co. shows that the explosion of data indicates how, by 2030, open-source and data ecosystems, and advances in cognitive technologies, will provide a fertile environment for automated insurance to flourish. 

It is expected that the amount of Internet of Things (IoT) devices connected to the internet will more than triple between 2019 and 2025. This means Lemonade is approaching the rest of the decade with the necessary infrastructure in place to ensure it continues to make gains in the insurance market.

Number of connected devices worldwide

Crafting a profitable model with a difficult customer base

While the disruptive nature of their operations has yet to turn Lemonade into a profitable big-hitter, it has helped it to develop a young clientele.

Approximately 70% of the insurance firm’s 1.2m customers were under the age of 35 in 2020, according to the company’s financial report for that year. Plus, 90% of them entered the insurance market for the first time with Lemonade.

Accordingly, their demographic is one focused on renters. A ajority (56%) of their In-Force Premium (IFP) comes from renters, compared to 30% from homeowners. That mix  doesn’t immediately lend itself to profitability for Lemonade. 

According to the National Association of Insurance Commissioners (NAIC), the average insurance premium paid by homeowners increased by 42% between 2009 and 2018, while it fell for renters by 3%.

Average premiums of homeowners and renters insurance

It is a problem currently inherent in the company’s business model. According to Pew Research, 65.9% of those under the age of 35 rent their property, compared to 42% of those aged 35–44 and 31.5% of those aged 45–54. The company will hope for evolution rather than revolution to turn the tide on its inflated share of rental customers.

These age groups also spend less on healthcare insurance, as the lower premiums on younger customers are less likely to require medical attention. Data from Statista shows that 43.2% of those in the bottom 50% for healthcare spending are in the 18–44 age band.

One area where the company might be able to ward off a low-cost corner is through its launch of Lemonade Car. The $311bn US car insurance market had remained untapped by Lemonade until this week’s launch, and investors reacted well to the company’s new offering.

According to research by Bankrate and Quadrant Information Services, on average, 25-year-old male drivers pay 33% more for car insurance than 40-year-olds, with 25-year-old females paying 20% more. The £175 average monthly payment for US drivers would dwarf the average $15.50 Lemonade rental customers pay.

Each of these factors point to a company preparing for a long-run retention strategy with its younger customers and a decision to increase demand for insurance. And while the company claims it has the tools to maintain its customer base, the price elasticity of its current cohort of younger and typically spendthrift customers may be of concern.

Lemonade’s latest earnings report 

In other Lemonade stock news, the insurance firm’s second-quarter earnings report published in August showed it struggling to avoid its nascent loss-making phase. 

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Lemonade’s 12-month trailing earnings per share (EPS) figure has consistently been in the negative territory since the company went public, with quarterly EPS negative in all but one quarter since the first quarter of 2020.

The latest second-quarter EPS figure showed the loss per share widening to $0.90 from the loss of $0.80 in the previous quarter. This result brought the 12-month trailing EPS into negative territory, undoing the work of the fourth quarter of 2020. 

Growth continues to lag on the back of a pervasive gross-loss ratio, which undid the steady declines through 2020 with a 96% figure in the first six months of 2021. 

Losses are skewed by a 121% loss ratio in the first quarter of 2021, which the company said was a result of a severe winter storm in Texas in February, which resulted in a year’s worth of claims within its first few days. But the second-quarter 2021 rates of 74% would still likely halt the steady declines seen during the past few years.

Revenues declined to $28.2m, down 5.7% from a year ago. However, the company cautioned against reading revenue as a comparative metric, with their proportional reinsurance agreements increasing the proportion of their premium that is ceded to 75% between Q2 2020 and Q2 2021.

Lemonade gross loss ratio chart

Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) showed a loss of $40.4m, compared to a $18.2m loss in Q2 2020, as operating costs increased by 126% year-on-year while revenues fell.

However, there are signs of growth in key measurements. Its premium per customer – the company’s primary earning metric,  covers the aggregate annualised premium for all customers – grew by 29% to $246 through Q2 since the previous year, which contributed to 91% growth in individual and family plan (IFP) insurance business. 

Both customer growth through the year, up 48% to 1.2 million, combined with a 29% increase in premium per customer to $246m, helped the company grow its premium base at a huge rate.

Third-quarter earnings are due on 9 November 2021, with Lemonade’s forward guidance projecting revenue between $32.5m and $33.5m, IFP between $336m and $339m, and EBITDA losses between $52m and $55m.

EBITDA losses for the year are projected by the company at between $169m and $173m, suggesting a bumpy end to the year, which Lemonade stock will have to weather. Any success gained by Lemonade Car should help the insurance firm comfortably eclipse its earnings metrics in the 2022 financial year.

Lemonade stock forecast (2021–2025)

Analysts on Marketbeat are struggling to come to a consensus on Lemonade stock predictions, particularly given the unsettling first-half 2021 loss figures that complicated the otherwise good news on customer growth and big increases in IFP.

The stock currently has the consensus ‘hold’ rating based on nine analysts’ predictions, with three ‘buy’ ratings, two ‘hold’ and two ‘sell’. The average Lemonade stock-price target comes at $78.14, ranging from the high of $130 to the low of $29.

Lemonade stock forecast

In March, JMP Securities forecast a price target of $130.00, although from a high base with 17.7% upside at the time. 

On the same day, Bank of America analysts took the opposite view, projecting a 66.6% downside at the time towards a price target of $29.00. In retrospect, both were well off the mark, indicating some stability following the disruption of Q1 2021.

Following disappointing Q2 earnings, Wolfe Research projected a contraction of 26.26% to a price target of $53.

Most recent projections from Barclays and Morgan Stanley targeted a moderate increase in the share price, with the Barclays analysts foreseeing the price reaching $68, and Morgan Stanley’s analysts giving a more optimistic price target of $74.

Favourable earnings on 9 November will make that upside look more likely, while the release of Lemonade Car will be expected to lift the stock’s long-term support.

Lemonade stock analyst price targets and ratings

In terms of a long-term Lemonade share price forecast, the algorithm-based forecasting service Wallet Investor sees the stock price fall to $79.088 by the end of 2022. Yet the forecasting firm gives a bullish forecast for 2023, seeing the price going up to $84.9. In 2025, Wallet Investor sees Lemonade stock climbing to $97.6. 

Note that stock price predictions can be wrong. Forecasts shouldn’t be used as a substitute for your own research. Always conduct your own due diligence before investing. And never invest or trade money you cannot afford to lose.

FAQs

Is Lemonade stock a good buy?

 

Lemonade stock currently has the consensus ‘hold’ rating based on nine analysts’ predictions, with three ‘buy’ ratings, two ‘hold’ and two ‘sell’ ratings, according to the data from MarketBeat. The company stock is likely to have priced in underwhelming earnings, and a good earnings report on 9 November could lift the stock above resistance levels.

Note that analyst forecasts can be wrong. Forecasts shouldn’t be used as a substitute for your own research. Always conduct your own due diligence before investing. And never invest or trade money you cannot afford to lose.

Why has Lemonade stock been going down?

Analysts are pricing in some upside to Lemonade stock, with the average Lemonade stock price target coming at $78.14, ranging from the high of $130 to the low of $29, according to the MarketBeat data. 

Note that analyst forecasts can be wrong. Forecasts shouldn’t be used as a substitute for your own research. Always conduct your own due diligence before investing. And never invest or trade money you cannot afford to lose.

Will Lemonade stock go up or down?

Analysts are pricing in some upside to Lemonade stock, with the average Lemonade stock price target coming at $78.14, ranging from the high of $130 to the low of $29, according to the MarketBeat data. 

Note that analyst forecasts can be wrong. Forecasts shouldn’t be used as a substitute for your own research. Always conduct your own due diligence before investing. And never invest or trade money you cannot afford to lose.

The difference between trading assets and contracts for difference (CFDs)

The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade using a CFD.

You can still benefit if the market moves in your favour or make a loss if it moves against you. However, with traditional trading, you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.

CFDs are leveraged products, which means that you will only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.

CFDs attract overnight costs to hold the trades (unless you use 1:1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also need to pay a broker’s commission or fees when buying and selling assets directly, and you’d need somewhere to store them safely.

Markets in this article

LMND
Lemonade, Inc.
19.65 USD
0.99 +5.340%

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