Summary
- Lemonade is a relatively disruptive new fintech company that sells insurance. Investors have been extremely excited by the company as Lemonade gained 139% since its IPO in July.
- Lemonade has a simple overall strategy, which is selling an insurance product that appeals to millennial consumers who are renting their first apartment or buying their first house.
- As a recent IPO with a limited public operating history, Lemonade is a very high risk, high reward company.
- Lemonade trades at a stratospheric Price/Sales of 49.45. Investor willing to withstand risk should add a starter position in Lemonade at current prices and buy the stock on any dips that the market provides.
Lemonade (NYSE: LMND) is a relatively disruptive new fintech company that sells insurance. Investors have been extremely excited by the company as Lemonade gained 139% since its IPO on Thursday, July 2, and today trades at a stratospheric Price/Sales of 49.45
| Company Name | Enterprise Value (NYSEARCA:BIL) | Price/Sales | Price/Book | Earnings Yield % |
| Berkshire (BRK.B) | 628.70 | 2.00 | 1.31 | 6.35 |
| Markel (MKL) | 13.27 | 1.55 | 1.22 | 3.25 |
| Selective Insurance (SIGI) | 4.62 | 1.38 | 1.63 | 5.13 |
| Lemonade (LMND) | 4.24 | 49.45 | 8.46 | -2.52 |
Lemonade's current valuation has even provoked skepticism among some investors that normally understand that new high growth companies can have high valuations. Today's Lemonade investors are speculating that the company's strategies will be far more disruptive to the old school insurance industry than Geico's disruptive strategy of using direct marketing to customers to drive down operating costs while passing on the savings to policyholders in the form of low rates. Lemonade is using a similar strategy as Geico (NYSE: BRK.A) by driving down operating costs in order to be able to pass savings to policyholders, except instead of solely using direct marketing, Lemonade is also using data, technology, artificial intelligence, contemporary design, and behavioral economics to achieve even better results than Geico has. Lemonade is buy for risk averse investors willing to speculate on Lemonade's strategies of being able to drive down operating costs to the point where the company can consistently give better service for lower prices than the staid blue blood insurance companies.
Lemonade's Strategy
Source: Pew research Center
Lemonade has a simple overall strategy which is putting out a insurance product that replaces brokers, paperwork and bureaucracy with bots and machine learning that has an aim of producing an insurance product that appeals to millennial consumers, whom incumbents like Allstate struggle to serve. Millennials tend to be mostly uninsured and desire a less complicated way to insure their very first apartment, condo or home. Millennials are a very attractive market to go after because they will very soon become the largest generation as the baby boomers begin to die off. Lemonade specializes in tapping into a millennial uninsured customer base for growth.
