Lemonade Stock | Why We're Avoiding LMND

Lemonade stock is trading at half of what institutional investors were willing to pay during the 2020 LMND stock debut. There's a reason for that. Lemonade isn't an insurance company because the most important attributes of an insurance stock - return on float and underwriting profits - are missing from Lemonade's business model. Instead, they think that giving money to charity will somehow keep the bad guys from filing fraudulent claims. If you're looking for exposure to the insurance companies, buy one of several dividend champions like Chubb or Aflac. Better yet, just buy shares in an insurance ETF. $LMND stock may be valued about the same as the cash and investment on their books, and there's a reason for that. Until they can get their combined ratio under 100%, Lemonade's business will never be profitable.

RESEARCH PIECES USED IN THIS VIDEO:
1. Insurance Provider Lemonade Offers Stock in IPO
2.Metromile Stock: A Pay-Per-Mile InsurTech
3. 10 Artificial Intelligence Startups in Insurance
4. How Technology Will Affect Big Insurance Companies

CHAPTERS:
Intro
What Lemonade does
Intro to the insurance industry
Insurance in recessions
Lemonade isn't an insurance company
LMND's combined ratio problem
Lemonade loves giving
Lemonade acquires Metromile
$LMND stock valuation
Conclusion

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[PaperBagInvest]

I heard / my answers:

"LMND is not an insurance company" -not true
"LMND doesn’t invest float" -yes, they do
"They don’t care if they pay claims" -yes, they do
"They are not profitable" -duh, of course not yet
"Giveback gives too much" - they actually give < 1% of premiums
"Incumbents have better data" - possible, but arguably not when you speak to people that work at incumbent insurance companies and consider that how systems are structured is the biggest key to gathering data

[Neil_X]

They are a loss-making business at the moment because they need to get to scale. You've spent a lot of time looking at their lagging indicators instead of looking at their leading indicators. They've laid out their year-1 predicted loss ratios, and they are coming in better than those projections. This means the new business they're bringing in is profitable business.

[Neil_X]

Lemonade's combined ratio will improve as the business scales. You will see operating expenditure as a % of gross-earned premium continue to reduce as they grow over the coming 12 months. Such has always been the thesis for the company.

[johnsandman]

Nice video. Lemonade has no loss reserves. I don't recall that being mentioned. Also I don't recall reinsurance being mentioned. That's where Lemonade's money goes. In a high rate environment, it's become more expensive.

[mrmurky]

alot of the things you’re saying is why I never liked this company. That and the things I didn’t know. Wow. Great piece. 💯

[danielstarczewski]

Hahahaha. Lemonade is the Best share to speculate ;) this guy doesnt know anything about investing. Look at the chart.