After a blockbuster IPO, what’s next for Lemonade (NYSE:LMND)? Going public July 2, Lemonade stock more than doubled on its first day of trading. But that was only the start. With investors excited about the insurance startup’s disruption power, shares traded at even higher prices earlier this month.
Granted, shares have pulled back in the past week or so. And after reaching an all-time high of $96.51 per share on July 6, shares change hands today around $70 per share. Nonetheless, this pullback may mean its high time to enter a position in this future insurance industry winner.
Why?
Just like how Carvana (NYSE:CVNA) and Vroom (NASDAQ:VRM) are disrupting the auto dealer business, Lemonade is upending the old school insurance business model. How so? Via AI (artificial intelligence) and machine learning. With this technological edge, they can compete with larger, more established names while also carving a viable path to profitability.
To top it all off, Lemonade has yet to spread its wings across the insurance landscape. Today, the company offers only homeowners, renters and pet health insurance. But, soon enough, the company could expand their offerings across multiple lines of insurance.
For nearly my entire two-decade career in finance, I’ve been obsessed with one thing: Getting there first.
If you know anything about the stock market, you know the power of being first — and I’ve jumped on trends in the past that have provided plenty of returns. In fact, I’m always looking for what the next megatrend could possibly be.
Overall, though, Lemonade has big potential and the makings of a long-term winner. Therefore, it’s a buy on any pullback. And here’s why.
Lemonade Stock and Millennial Megatrends
Millennials aren’t kids anymore, as the youngest members of this generation are hitting their thirties. They’re settling down, getting married, having kids, the whole nine yards.
In other words, their demand for insurance is accelerating. And with this shift, the insurance business needs to throw out its current baby boomer-oriented playbook. This may be a challenge for legacy insurers. But for Lemonade, this large-scale change gives them a major edge.
How so? Let’s look at it from both sides of the counter: From the customer’s side, this insurer has built their customer interface with millennials in mind. It’s well-known millennials aren’t the most comfortable talking to people. They prefer self-checkout at the grocery store, e-commerce for shopping, etc.
That said, Lemonade knows this full well. Catering to millennial customer service preferences, the company uses chatbots instead of phone-based customer service. In short, no more waiting on hold “for the next available representative.”
Instead, if you need to file a claim, the company’s AI-powered chatbots will go through the process. In turn, not only does this allow customers to avoid the hassles that come with a live representative, but the majority of claims are paid out instantly.
Sounds great, doesn’t it?
However, as an investor, I’m sure you’re wondering how they pull it off.
It’s simple. Jumping over to the other side of the counter, let’s take a look at the company’s back-end. Firstly, by using machine learning, they can better assess price risk. Also, by maximizing automation, they can operate with lower levels of overhead costs.
Secondly, by offloading most of its risk to reinsurers, the company isn’t trying to make a profit from underwriting. Instead, Lemonade is largely building a fee-based business model. This means more consistent earnings, and greater reason for investors to keep giving shares a premium valuation.
Plenty of Runway for Shares to Head Higher
After its epic run this month, you’re probably thinking it’s too late to get into Lemonade stock. However, that’s far from the case. Granted, investors chomping at the bit to buy earlier this month sent shares dramatically higher in a matter of days.
But, the company has far from reached its peak valuation. Right now, they’re crushing it, building up a substantial homeowner’s and renter’s insurance business. However, that’s only the start for Lemonade.
The company has big plans to utilize its edge, and start providing other lines of insurance. In fact, the company has already expanded outside homeowner’s/renter’s insurance, and now offers pet health insurance.
With that in mind, it’s not far-fetched to say the company could eventually enter the auto insurance business or other types of property and casualty insurance. Getting into lines like life insurance also doesn’t seem out of the question, either, given their focus on millennials settling down.
Simply put, the growth train for Lemonade will remain in motion for years to come.
Changing the Game With Insurance, Buy Lemonade Stock on Any Pullback
Overall, Lemonade is fast disrupting the insurance business. And by catering to millennials, they have an edge over legacy rivals, as this generational cohort “grows up.”
It may offer just a few insurance lines right now. But, in the years to come, they could accelerate growth by entering the auto and life insurance businesses.
Granted, shares have been “too hot to touch” as of late. And, investor interest has cooled off a bit, as seen from shares pulling back from their highs.
However, this, and any pullback, is a great opportunity to enter a position Lemonade stock. Therefore, you should seize the opportunity while it lasts.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. Click here to see what Matt has up his sleeve now. As of this writing, Matt did not hold a position in any of the aforementioned securities.