Lemonade Share Forecast January 2022 – Time to Buy LMND?

Shares of insurance company Lemonade (NYSE: LMND) are in the red, closing at $35.22 as of January 14^th (19:54 EST). When Lemonade debuted in the stock market, many investors were attracted to its unique business model. As a result, the shares were up around $190 in January 2021. Since then the shares have dropped over 78%.

Lemonade – Technical Analysis

Lemonade’s financial statement indicates a market cap of $2.171 billion with total assets worth $1.301 billion. Revenue for 2020 was at $79.10 million with a profit margin of -154.61% compared to 2019’s $67.30 million.

Moving averages such as Exponential Moving Average (10)(37.64), Simple Moving Average (10)(37.42),  Exponential Moving Average (20)(40.01),  Simple Moving Average (20)(40.47) and Exponential Moving Average (30)(42.46) are indicating a sell action. Oscillators such as Stochastic RSI Fast (3, 3, 14, 14)(56.80),  Williams Percent Range (14)(−87.03), Bull Bear Power(−7.07   ) and Ultimate Oscillator (7, 14, 28)(43.05) are neutral.

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Recent Developments

Lemonade has brought two things to the forefront. The first is its use of AI, as all of its decisions on insurance applicants and claims are based on AI and machine learning. This allows its consumers to have a pain-free process when submitting a claim. The other is its completely different business model, which differs from traditional insurance companies. Lemonade takes a flat cut from the premiums up front rather than receiving the money left over after claims are paid out. This is a customer-centric service, as it eliminates Lemonade’s incentive to deny claims.

Lemonade primarily offers renters insurance along with pet, life, and homeowners insurance. This has led to widespread adoption in the United States and demand for products. This has also resulted in the development of young AI engines for each service that is still collecting data and learning more to become more accurate.

The most appealing lemonade product has to be its car insurance.  Lemonade acquired another car insurance company, Metromile, which has data on over 400 million road trips and billions of miles driven, which will be fed into Lemonade’s AI engine. This has allowed Lemonade access to a matured product rather than a product in its infancy. This also means more accurate decisions from the very beginning.

Over the last few yearsLemonade has improved its gross loss ratio, which is the percentage of the premium paid out in claims. While its gross loss ratio goal is 75% which was higher in 2021. It recorded a loss ratio of 77% in the third quarter. Pet loss ratio improved four percentage points while homeowner’s ls ratio improved 52 percentage points on a year over year basis.

Should You Buy LMND Shares?

Investors interested in Lemonade has to consider some risks. Firstly its AI isn’t perfect and can produce inaccurate results.  This can be Lemonade’s fate if its loss ratio continues to be high or does not improve.  Another risk is its major net losses. Lemonade recorded a net loss of $171 million in the first nine months of 2021, which exceeds revenue by $87.5 million in the same period. The net loss can decrease if adaption across the US continues to increase. But if net loss remains high, the shares won’t bounce back in 2022.

While a surge shouldn’t be expected in just one year, there are enough reasons for investors to believe that the company could reach these highs again over the next several years. Considering Lemonade’s disruptive nature, one can add LMND shares for the long term.

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