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LMND - Squeeze the Lemon?

Today, we take a closer look at one of our high flying, growth pick LMND, that has generated tremendous short term return for our members, before experiencing a sharp pull back that has provided a great opportunity for members to further strengthen their position in it.

What is different?

LMND is a disruptive insurance company with rapidly growing customers as it expands in other states. The customer experience is far superior than any traditional insurance company with a one second claim approval and generating quotes digitally in a simple and engaging interaction! It is focussed on simplifying and speeding the process involved in the application and claims process, and eliminating the pain customers experience in a typical engagement.

Growth Potential?

In spite of the recent surge, LMND has still a lot of market share to gain in an insurance industry that is estimated at around $5 trillion! Their current focus has been on the renters and the homeowners insurance, with a recent offering of pet insurance. They are bracing themselves to disrupt the Life Insurance segment which is the most complex in terms of buying, and is in itself a $750 Billion market to exploit. What next? Auto Insurance! This will open up an entire new growth avenue for LMND and is a very natural and obvious segment to exploit. Clearly, it has a tremendous market opportunity to tap into, and an opportunity to continue improving their profit margins.

The company has produced three outstanding quarters since it went public in July 2020. In Q4, the customer count increased 55% over 2020, exceeding the 1 million mark. Premium per customer increased 20%, indicating that customers are buying more types of insurance. Also, given their focus on customer experience, the likelihood of retention of their customers over several years or maybe entire lifetime is quite high!

The above image (Source: Lemonade) sums up the "flywheel" concept that illustrates a self feeding loop that requires significant effort to drive initial momentum, but over an extended period could become self sustaining and provide stellar growth. LMND is poised to capitalize the flywheel if they execute sharply from here!


Not everything has been rosy for LMND as expenses continue to increase and the net loss has been widening. With the stock trading around 50 times the average analyst revenue estimate for 2021, there are valuation concerns and the ability of LMND to sustain its growth and build a path to profitability?

Our Stance?

While we appreciate the risks called out above, we love the growth prospects ahead of it. While the valuation may be high today as is for many high growth companies in their early stages, we are more interested in the long term valuation. If 3 years down the lane, LMND could even be at a 25% market capitalization of its larger peers, it will put its market capitalization at around $13 billion (versus a current valuation of $6 billion). A 100% return in 3 years is not a bad deal which is accounting for just a conservative estimate. LMND remains a "Buy" under $105 and a "Strong Buy" under $85 with a minimum 3 year horizon!

Stay tuned, as there will be more action next week.

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1 Comment

reddit throwaway
reddit throwaway
Mar 26, 2021

Appreciate the in-depth analysis. Looking forward to more content like this! While the market trades sideways, it's good to know this level of details to build conviction. 🚀

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