Lemonade Share Price Forecast October 2021 – Time to Buy LMND?

Shares of U.S.-based insurance company, Lemonade (NYSE: LMND) have declined on seemingly no company-specific news. Many analysts have pointed out rising treasury yields as one of the main reasons why Lemonade shares have fallen, which has also negatively affected many other technology stocks. As of October 4th, 19:59 EDT, LMND shares were at $61.87.

Lemonade – Technical Analysis

Lemonade’s financial statement indicates a market cap of $3.809 billion with total assets worth $1.302 billion. Revenue for 2020 was at $79.10 million with a profit margin of -154.61% compared to $67.30 million in 2019. Lemonade reached 1.2 million customers during the second quarter of 2021, which is an increase of 48%. Its retention rate is also up to 82% from 73% last year.

Moving averages such as Exponential Moving Average (10)(67.33), Simple Moving Average (10)(68.12), Exponential Moving Average (20)(69.91) and Simple Moving Average (20)(70.74) are indicating a sell action. On the other hand, oscillators such as Stochastic RSI Fast (3, 3, 14, 14)(11.14),  Williams Percent Range (14)(−93.73), Bull Bear Power(−11.11) and Ultimate Oscillator (7, 14, 28)(37.17) are neutral.

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Recent Developments

Lemonade’s business model differs from many of its peers. It takes 25% of the premium it receives from customers and allocates it towards administrative and growth-related expenditures. The remaining goes to cover and associated expenses related to the company. Any surplus from this amount goes to charity. Lemonade has donated $2.3 million in charity this year, more than double last year. The company has benefitted from lower overhead and expenses, backed by a robust algorithm that lets it accurately quantify risk.

The recent drop in share prices has not been caused by any specific financial news coming from the company. Lemonade announced new pet insurance designed for puppies and kittens recently. Investors have also been anticipating the beginning of its auto insurance coverage by the end of 2021.  However, it seems like economic issues such as an increase of the 10-year Treasury yield to 1.5% and possible fallout related to the Chinese real estate developer China Evergrande Group had an impact on investors’ minds.

While the insurance industry is quite old and stodgy, Lemonade’s use of new technology has sparked some investor interest. It uses machine learning, marketing focused on youth and an app-based product to their advantage. As a result, they have generated significant profit over the years, a part of which charity of insureds’ choice which might help discourage insurance fraud among its customers.

Should You Buy LMND Shares?

Lemonade certainly went up and was beating the market for a while before kind of crashing down. There are two factors for this crash, the first being that it is still an early-stage company and has a lot to prove. The second factor is a huge price-to-hope ratio where investors are hoping that the company could capture a huge market and have a significantly large market cap.

Investors interested in Lemonade need to look at its gross-loss ratio which is the percentage of premiums that are paid out in claims. In Lemonade’s case, it has improved over time reaching down to 74% in the most recent quarter from 132% back in the second quarter of 2018. Lemonade’s cost advantage could translate into lower prices which seem to be the long-term goal of the management.  All of this is good news for Lemonade investors.

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