SHOULD YOU BUY LEMONADE
“Forget everything that you know about the insurance industry”
That’s the strap line that Lemonade uses and I must say that having watched and read hours (maybe days) of content on this innovative business, I believe that Lemonade’s use of AI, data & behaviour economics will help the company redefine the insurance industry.
WHAT MAKES LEMONADE DIFFERENT?
Firstly, Lemonade see’s itself as first and foremost a technology business. The company is leveraging AI & data analysis to manage its work flow and this gives the company a few major advantages over their 20th century rivals.
Thanks to their obsession with collecting & crunching data, Lemonade feels confident enough to pay out claims in as little as 3 seconds! This automation process also allows the business to keep operating costs down. In fact, Lemonade claims to employ 1 person for every 2000 customers versus the industry average of 400 customers per employee (500% efficiency improvement).
The second thing that makes Lemonade stand out is their business model! Unlike the majority of their rivals, Lemonade charges a flat fee to it’s customers and reinsures the rest. This removes the conflict of interest that has plagued the insurance industry for the past 100 years! Unlike their peers, Lemonade has nothing to gain by denying claims as they make the same amount of money regardless.
IS LEMONADE STOCK EXPENSIVE?
After a tremendous couple of weeks, Lemonade is now trading at an all time high… So yes, the stock is expensive by its own standards. However, how does the company compare to other growth opportunities on the market? In the picture below you can see how Lemonade’s fundamentals compare with other fast growing stocks.
Key things to note:
- Lemonade is the 3rd (out of 13) most expensive stock on the list (P/S)
- Lemonade is the 2nd fastest growing stock based on revenue
- Lemonade has the 2nd worst earning per share (EPS) & 3rd worst cash flow
- Lemonade is one of only 3 stocks on the list with zero debt
- Lemonade is not expected to be profitable next year (unlike 5 stocks on the list)
HOW BIG IS THE GROWTH OPPORTUNITY?
Lemonade currently only operates in 4 countries having just launched in France. This means that the business still has a lot of potential to expand and penetrate the $5 trillion global insurance market. If Lemonade were to become a leading player in this space then the company will almost certainly be worth more than the $5 billion it is valued at today.
That said, based on Lemonade’s current fundamentals – There is no denying that the stock is overvalued. This makes a correction in the stock more likely, however given the extraordinary revenue growth and untapped market potential, long term investors should be able to look beyond Lemonade’s current sky high valuation and see a future insurance industry giant in it’s infancy.
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