There’s no way to sugarcoat it — the stock market has been crushed this year. The widely followed tech-heavy Nasdaq 100 has spent most of the year in bear market territory, and at one point, its losses for 2022 exceeded 30%.
But investors should maintain a focus on the long term because history suggests the market always recovers given enough time, broadly speaking. For that reason, it might be worth putting some money to work while stocks are beaten down, and Wall Street might offer some clues about where to look for bargains.
Lemonade (LMND 5.40%) is a new-age insurance company driven by artificial intelligence. Its stock hit a 52-week low of $15.99 in May, and one Wall Street analyst firm thinks it could rise to $40 over the next 12 to 18 months. The stock has already recovered to about $24.40, but there’s still plenty of room for gains if that prediction comes true.
Lemonade is walking with giants
The insurance industry is well established, and it’s dominated by large players that have been incredibly successful operating under their traditional business models. Insurance isn’t something consumers think about every day; typically, once they’ve purchased a policy, it floats to the back of their mind until renewal time — or when it’s time to make a claim, which can be a slow and tiresome process.
The industry is ripe for disruption, especially given the pace with which technology is advancing at the moment. Lemonade has stepped in and it’s gaining momentum in a big way, serving 1.58 million customers, most of whom have come from its much larger competitors. What attracts them to Lemonade? The company is using artificial intelligence (AI) to overhaul the customer experience and the way policies are priced.
Prospective customers can jump onto the Lemonade website and receive a quote in less than 90 seconds from Maya, an AI-powered online bot. And for existing customers, Maya can pay out claims in less than three minutes without any human intervention in most cases. The company currently operates in the homeowners, renters, life, pet, and car insurance markets, the latter being its most recent addition.
Lemonade unleashes LTV6
In the second quarter of 2022, Lemonade revealed its most predictive artificial intelligence model yet, called LTV6. Its job is to determine the lifetime value, or LTV, of a customer based on a number of factors including their likelihood of switching to another insurer, their likelihood of making a claim, and even the probability of them purchasing more than one Lemonade policy.
From there, the company is able to more accurately price premiums for that customer. But LTV6 goes even further. The model is able to identify inefficiencies across Lemonade’s business by detecting underperforming insurance markets and geographic areas, so the company can quickly pivot its strategy to improve its financial performance.
Therefore, it’s no surprise the second quarter was Lemonade’s best so far. Its in-force premium, which is the dollar value of premiums paid by customers for current policies, grew 54% year over year to an all-time high of $458 million. Revenue also soared 77% to $50 million, and Lemonade’s average premium per customer climbed to $290, the highest level yet.
Wall Street is on board with Lemonade stock
Profitability is one of Lemonade’s most significant challenges right now. It had a net loss of $143 million in the first half of 2022 as it continues to invest in growth, particularly in its new car insurance segment, which could be its most lucrative yet. But the company says it has enough cash on hand to gradually trim its losses and transition to profitability, and it actually expects its losses to peak in this year’s third quarter.
Uncertainty is running high in the present economic environment, so investors have shied away from high-growth, loss-making companies. But some analysts on Wall Street see potential in Lemonade. JMP Securities rates the stock an outperform and has attached a $40 price target. That represents upside of 66% for investors who buy now, and if it gets there, it would be a 150% jump from the stock’s 52-week low from just three months ago.
But in the big picture, Wall Street’s targets are relatively short term in nature. Lemonade is growing into a car insurance market, for example, that could be worth $316 billion in 2022 alone. The company’s prospects over the next 10 years could see the stock perform much better in the long run than any analyst estimate suggests right now.