About Lemonade
No lie, I think lemonade is mighty tasty.
The pink kind or that of the yellow persuasion, it’s all good to me, especially on a blisteringly hot, all too humid Texas day.
Now, while I really would love to go deeper into my affinity for lemonade, I presume you did not click on this stock analysis article to become exceedingly thirsty, but rather, to learn a bit more about an up-and-coming, millennial-oriented insurance company that just so happens to be called, Lemonade.
Headquartered in New York City, New York, Lemonade is a young and sleek insurance company that is seemingly intent on making insurance more comprehensive as well as comprehensible, as for those who have gone through the trial of mulling through and selecting an insurance policy, you know all too well that many of the terms of each and every available policy are far from easy to understand and after a few minutes, one feels way in over their head and even more clueless than when they initially started their insurance quest.
Lemonade is perhaps turning the insurance world on a whole new axis, and with the idea of making insurance easier to understand and perhaps even more policy holder-friendly, we like the company and its mission already.
Nevertheless, the company (founded in 2015, by the way) is in the business of insuring many different people in many different contexts, as the company sells products such as renters’ insurance, homeowners’ insurance, car insurance, term life insurance, and heck, even pet insurance, offering these core services while also integrating bouts of artificial intelligence (AI) within its platform as well, so as to make the user experience that much more better, enjoyable and efficient.Hopefully that’s really the case, anyway.
One of the additional things we initially enjoy about Lemonade is the fact that it is far leaner than the larger, older and frankly boring insurance companies out there such as the Allstates and the State Farms of the world, also potentially lending itself the ability to undercut some of its more seasoned competitors and draw in more of the younger audiences that surely will need some form(s) of insurance as they get older.
Now, before diving into this company’s core financials, figures and other relevant ratios, we want to admit that we aren’t expecting the best of numbers from this company, as it is still very young and with all of the technological investments it has made and is currently accelerating, we have our suspicions that it is indeed burning through a good deal of cash, and with that, we think this company being profitable on a trailing twelve month (TTM) net basis is an absolute pipe dream, especially with respect to its more than established, veteran competitors.
However, we don’t definitively know that this will be the case, as the company might be burning through some cash but it might not be as bad as we had initially assumed, and the only way we will know is if we take a few minutes and walk through the company’s core figures.
Let the walking begin.
Lemonade’s stock financials
Alright, Lemonade is a $1.19 billion company (according to its present market capitalization) and is accompanied by a share price of $17.05 along with a lack of a price-to-earnings (P/E) ratio as well as not an annually distributed dividend in sight, all of which initially makes sense since the company is more than likely not profitable at the moment, as can also be quasi-verified by the company’s listed negative earnings per share (EPS) metric, showing a -3.72.
If this truly is the case (we will definitely find out throughout the rest of this stock analysis article), then the company has absolutely no business even thinking about issuing a dividend to its shareholder base, as it would act as a major cash drain on the company that evidently needs to hang onto as much cash as possible so as to merely sustain its operations.
Moving right along, we can find that according to the company’s balance sheet, Lemonade’s executive team is tasked with tending to and properly taking care of nearly $1.7 billion in terms of total assets as well as $824 million in terms of total liabilities, which is certainly a positive, as this young insurance company has remained quite lean, maintaining basically double the amount of total assets than the total liabilities displayed on its books, and for a company that prides itself on its artificial intelligence capabilities, it certainly seems to be in a good position to continue investing not only on its in-house technological capabilities but also in external technology players, perhaps some of which Lemonade could wholly acquire so as to boost its own capabilities in efforts of staying ahead of the technology curve within the insurance space.
All in all, we very much like the general condition of the company’s balance sheet.
With respect to the company’s income statement, Lemonade’s annual revenues since 2018 have been moving upwards and rightwards, which we frankly figured to be the case, as it really should be for any younger, publicly traded company, with its revenues in 2018 standing at $22.5 million, $67.3 million in 2019, $94.4 million in 2020, $128.4 million in 2021, leading all the way up to its latest reported revenue figure of $256.7 million, as reported in 2022.
Revenue generation has hardly been a problem for Lemonade, however, the critical component of all of this is how much the company has or is losing as a result, or, in other words, how much cash this company is burning in order to obtain the aforementioned revenue figures.
Some cash burn is to be expected, but too much could prove to be fatal for Lemonade, its shareholders and its customers, among other stakeholders.
With that, in reference to the company’s cash flow statement, Lemonade’s negative net income has been eating away at its revenues, standing more negative than each of its corresponding revenue figures, for instance, standing at -$298 million in 2022 with respect to its previously mentioned revenue figure during that same year of $256.7 million.
So yes, the company is burning through a good deal of cash, and at this stage, at least for us, we find it rather challenging to accurately guess when this company will inch closer to being positive on the basis of net income, not to also mention the fact that the company’s total cash from operations during each year during and between 2018 and 2022 have remained negative as well, and to us, this is a big question mark and marked point of uncertainty.
If gradual improvement was there, we would have far less trouble sleeping at night, however, when the company’s cash flow burn seemingly remains severe and isn’t being gradually trimmed down, we don’t feel great about its prospects in this regard.
Why would we?
Lemonade’s stock fundamentals
Moving forward, we fully expect some disappointing figures, especially given the aforementioned cash flow hints, and we aren’t trying to be unnecessarily negative and shrill, but we are just merely going off of the facts as they are presented to us.
According to the figures displayed on TD Ameritrade’s platform, Lemonade’s trailing twelve month (TTM) net profit margin is listed as -64.12% to the industry’s respective average of 11.42%, confirming that Lemonade is indeed losing money hand over first, and while its balance sheet is currently in a good enough place in order to sustain these losses, it most certainly cannot do this forever and it is far from confidence invoking when a company is essentially being punished for generating revenue, especially when there is yet to be a clear end in sight.
Regarding the company’s TTM returns on both assets and investments, Lemonade once again sings the blues, as, for example, TD’s platform also has the company’s TTM return on assets listed as -15.37% to the industry’s respective average of 3.58%, which we are really less concerned about, at least for the time being, as generating returns in these regards can take some time and so long as there is some progress, say, prior to 2030, we aren’t going to lose our minds over this specific metric in the case of Lemonade.
Should you buy Lemonade stock?
We are thrilled when we analyze companies that are intent on remaining abreast with the younger consumer audience(s), as to us this naturally means established brand equity and loyalty and nearly guaranteed revenue growth as the years go on.
However, we just found one too many question marks in this company’s figures, as our primary concerns surround the company’s rate of cash destruction, as based off the company’s revenue numbers and how they relate to the net income and total cash from operations elements found within the company’s cash flow statement, it doesn’t seem as though Lemonade is going to cease burning through cash anytime soon, and that’s a problem to us.
While it is an undoubtable positive that Lemonade’s balance sheet maintains a healthy physique, not to mention that its total annual revenues have been growing at a nearly exponential rate, the fact of the matter is that it is burning through a lot of cash in order to capture said revenues and since we don’t see the acceleration slowing anytime soon, we feel as though we are left with no other choice than to employ this company’s stock (NYSE: LMND) a “sell” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.