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Why Lemonade Was a Sour Stock Today

What happened

Monday was hardly a sweet start to the trading week for Lemonade (NYSE: LMND). The next-generation insurer's stock was dinged by an analyst's downgrade; as a result, the company's share price was down by nearly 1% in midafternoon trading, against a buoyant and rising S&P 500 index.

So what

Piper Sandler prognosticator Arvind Ramnani is the person behind the downgrade. Monday morning, he changed his recommendation on Lemonade from overweight (buy) to neutral. He also reduced his price target on the stock to $20 per share from the preceding $24.

Ramnani's move is based on concerns about what he termed "the prolonged timeline to profitability" for the habitually loss-making Lemonade. The analyst also noted that integration risk from Metromile, the upstart auto insurer that Lemonade struck a deal to acquire last November, is also a potential drag on the company's stock.

Also, Ramnani characterized Lemonade's spending on customer acquisition as "substantial," and expressed concern on the capital plowed into technology, and general and administrative expenses.

Ultimately, due to these factors, the analyst is anticipating the deep net losses to continue; this risks affecting business-growing investments throughout the company.

Now what

It's never a good time for any stock to get hit with an analyst downgrade, but it's a particularly bad time for Lemonade just now. The insurer is both a fintech and a growth company, and neither asset category is particularly enjoying investor favor.

Although few expected Lemonade to suddenly flip into the black on the bottom line (particularly after announcing the Metromile deal), investors might find it disheartening that one analyst, at least, expects that streak of red numbers to lengthen.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Lemonade, Inc. The Motley Fool has a disclosure policy.


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