Is Lemonade a buy after sell off?

It's time to revisit an innovative insurance name. Here is the break down on $LMND, otherwise known as Lemonade.

Current Price: $72.48

52/Wk High: $188.30

52/Wk Low: $44.11

Market Cap: $4.5 Billion

Read below for the breakdown!

Lemonade ($LMND) is a rapidly growing artificial intelligence insurance company that offers customers renters, homeowners, pet, and life insurance all through a unique and simple digital platform.

More importantly, Lemonade’s unique platform allows them to replace the “bureaucracy” of insurance companies with machine learning and bots, in return creating a more efficient paperwork free insurance process.

Currently, Lemonade is available in Germany, France, the United States, and the Netherlands with plans to continue expansion into other major countries.

Recently, Lemonade announced the opening of its early registration for Lemonade Car Insurance. The move into the car insurance world is a big leap and marks the third major addition to the company’s offerings in under a year.

While Lemonade offers plenty of innovation, the stock has had a rough few months, moving 55% to the downside throughout the last three months. On a year-to-date basis, the stock itself has sold off by over 40%.

Digging into the numbers, Lemonade missed Q1 2021 expectations with an EPS of $-0.810, below the analyst’s EPS consensus estimate of $-0.807. On a quarter-over-quarter basis, EPS declined from -0.60.

Revenues declined as well with Q1 2021 revenues totaling $23.5 million, just under the Q1 2020 level of $26.2 million.

It is important to note the revenue decline was attributed to proportional reinsurance agreements that went into effect in Q3 2020, which in turn created a difficult year-over-year comparison.

Shifting into IFP, in-force premium increased by a strong 89% to $251.7 million. For comparison, the Q1 2020 IFP was $133.3 million. For context, IFP is the “aggregate annualized premium for customers”.

There were two key drivers to IFP throughout the quarter; customer count and premium per customer. Customer count increased by a substantial 50% to 1,096,618 customers. For comparison, the Q1 2020 customer count was 729,325 total customers.

The second key IFP driver was premium per customer growth, which experienced a strong increase of 25% year-over-year to $229. According to management, this jump was a result of higher average policy values for newer products.

Shifting into gross earned premium, Lemonade experienced 84% expansion in its gross earned premium, bringing the total to $56.2 million.

On the profit front, Lemonade turned out a lower gross profit of $1.9 million, representing a 59% decline on a year-over-year basis. According to management, the decline in gross profit was due to winter storm Uri and its creation of $6.5 million in net incurred losses.

Furthermore, Lemonade reported a net loss in Q1 of $49 million, significantly more than the Q1 2020 net loss of $36.5 million. As for EBITDA, the company reported a Q1 adjusted EBITDA of $41.3 million, representing a strong increase from the $18.9 million in Q1 2020.

Margins took a hit on a year-over-year basis as well, with gross profit margin declining from 18% in Q1 2020 to a weaker 2021 level of 8%.

Rounding out earnings, Lemonade reported an annual dollar retention (ADR) level of 81%, representing a solid improvement over the 70% in Q1 2020.

Leadership provided solid guidance as well, with management expecting Q2 2021 revenues to land within a range of $26 million to $27 million.

Along with revenue expectations, leadership is expecting IFP to land within a range of $283 million to $288 million and for gross earned premium to land within a range of $63.5 million to $65 million.

Shifting into the balance sheet the numbers are solid.

Total Debt: None

Total Liabilities: $334 Million

Total Assets: $1.478 Billion

Cash & Equivalents: $1.174 Billion

On a valuation basis, Lemonade does trade at a premium.

Price to Sales: 43.34x

Price to Book: 3.73x

Management has room to improve and be more effective.

Return on Equity: -28.71%

Return on Assets: -14.36%

Given the numbers the analysts are bullish with a mean price target of $85.00/share, representing a 17.27% upside.

The high price target is $134.00/share, representing a 84.88% gain, while the low price target is $29.00/share, representing a -59.99% loss.

The big money is less involved with 34.16% of Lemonade being owned by institutions. Top holders include SoftBank Group, Baillie Gifford & Co., and Sequoia Capital Partners.

On a technical basis Lemonade could be presenting opportunity. According to the six-month charts the MACD is moving with downside momentum within a range of -5.86 down to -7.035.

The six-month charts are also indicating an RSI of 40.83 and CCI of -80.551, both of which are on the low end.

In short, Lemonade ($LMND) is a solid company with an expanding customer base, solid management team, and sturdy balance sheet.

EAT - SLEEP - PROFIT

Disclaimer: This is not direct financial advice, simply an opinion based on independent research.