LMND: Should You Buy the Dip in Lemonade Stock?
24 Noviembre 2021 - 4:34AM
Finscreener.org
Shares of insurance technology
company Lemonade (NYSE: LMND)
are currently trading at $51.59 which is 72% below its all-time
highs. The company is currently valued at a market cap of $3.2
billion and presents investors with an opportunity to buy a growth
stock at a lower multiple.
Let’s see if LMND stock should be
part of your portfolio right now.
Why is LMND stock down in the last month?
Lemonade stock is trading lower
in recent sessions after the company reported its Q3 results and
disclosed the acquisition of Metromile
(NASDAQ:
MILE) in an all-stock transaction valued at $500
million. In the third quarter of 2021, Lemonade reported revenue of
$35.7 million and a loss of $1.08 per share. Comparatively,
analysts forecast revenue of $33.4 million and a loss of $1.16 per
share in Q3.
In the quarter ended in December
2021, Lemonade forecast sales between $39 million and $40 million
with an adjusted EBITDA loss of between $52 million and $50
million. Wall Street forecast sales of $39 million in Q4 for LMND
stock. In Q3, Lemonade increased sales by 101% year over year but
its net loss widened to $66.4 million, up from $30.9 million in the
prior-year period.
While the acquisition of
Metromile will allow Lemonade to gain traction in the auto
insurance segment, the former is also booking heavy losses.
Further, the all-stock deal will dilute shareholder wealth at an
accelerated pace. Metromile is a much smaller company compared to
LMND but its adjusted loss of $48 million in Q2 was similar to
Lemonade.
What next for Lemonade investors?
In the last year, Lemonade’s
revenue growth has been misleading as the company
changed its business
model. In Q3 of 2020, the
company launched reinsurance agreements where it surrenders 75% of
premiums to reinsurers for a 25% commission for every dollar it
ceded.
Though it generates lower revenue
for LMND, the business model is likely to improve the company’s
gross margins while reducing capital requirements. So, now
investors should look at different metrics to analyze Lemonade’s
growth story.
Lemonade ended Q3 with a customer
base of 1.36 million, which was 45% higher compared to its year-ago
figure of 941,000. We can see that Lemonade’s artificial
intelligence-powered platform is attracting insurance buyers at a
robust pace. The company also confirmed its life insurance and pet
insurance services are drawing first-time buyers, allowing it to
diversify from verticals such as homeowners and renters
insurance.
Is more shareholder dilution on the cards?
In fiscal 2020, Lemonade reported
a net loss of $122.3 million. In the first three quarters of 2021,
its net loss widened to $171 million. We can see why investors were
not too enthused by the company’s takeover of Metromile.
Lemonade’s outstanding share
count has more than doubled year to date and this trend is likely
to continue in the future. The company ended Q3 with just $427
million in cash and no debt. Comparatively, its net losses are
forecast to widen from $3.93 per share in 2021 to $4.45 per share
in 2022. Given its share count of 63.6 million, total losses next
year will be close to $300 million. And this is without accounting
for the acquisition of Metromile.
The final takeaway
LMND stock remains expensive
despite the significant decline in the last three months. Analysts
expect the company’s sales to rise by 34.6% year over year to $127 million in 2021
and by 69.5% to $215.34 million in 2022. If we add Metromile’s
revenue estimates of $85 million, the stock is still valued at a
price to 2022 sales multiple of 8x which is extremely
steep.
Lemonade shares might regain
momentum especially if the company can successfully integrate the
two businesses, lower costs and benefit from synergies over the
long term.
MetroMile (NASDAQ:MILE)
Gráfica de Acción Histórica
De May 2024 a Jun 2024
MetroMile (NASDAQ:MILE)
Gráfica de Acción Histórica
De Jun 2023 a Jun 2024