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Lemonade (LMND -0.73%) has gotten off to a good start in 2023. Its shares rose 18.2% this week as of 10:45 a.m. ET Friday, according to S&P Global Market Intelligence. The stock is trading at about $16.50 per share and is up about 20.3% year to date as of Jan. 13.
Overall, the major market indexes were up this week, with the S&P 500 rising 2%, the Dow Jones Industrial Average climbing 1.7%, and the Nasdaq Composite gaining 4.1%.
Lemonade is a digital insurance company that uses artificial intelligence (AI) and telematics to set policies and handle claims. However, it performed more like a fintech than an insurance stock in 2022, as its shares plummeted about 67% in 2022 due to the company’s struggles with expenses and profitability.
The gains this week came mostly after Thursday morning’s release of the Consumer Price Index (CPI) by the Bureau of Labor Statistics. The December CPI, a key measure of inflation, dropped 0.1% compared to the previous month. Compared to the previous December, inflation was up 6.5%, but it was down pretty sharply from November, when it rose 7.1% year over year. Gas prices were the biggest contributor to the decline — they fell 4.5% in December — but food prices ticked up 0.3% compared to the previous month.
There appeared to be no direct company news or specific catalysts that otherwise pushed Lemonade shares higher, but the decent inflation numbers boosted most fintech and growth stocks, as it could impact the pace of interest rate hikes.
It’s earnings season, so investors will want to pay attention to Lemonade’s fourth-quarter and year-end earnings report set for Feb. 22. Investors should be looking for continued growth in in-force premiums, which were up 76% year over year in the third quarter, as well as growth in customers, which rose 30% in Q3.
Investors should also be watching for an improvement in the gross loss ratio, which jumped from 74% in the second quarter to 94% in Q3. The company attributed some of that increase to the acquisition of Metromile, a digital car insurance specialist that Lemonade bought last year.
Lemonade is in the process of ramping up its Lemonade Car insurance offering, recently launching the service in Texas. It also has a deal with Chewy to provide pet insurance to its customers.
There is a lot happening at Lemonade, but it remains unprofitable, and it has been saddled with high expenses as it ramps up these new businesses. It remains a difficult market for growth stocks, so I’m not recommending a buy here, but I think it’s an interesting company to watch.
Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chewy and Lemonade. The Motley Fool has a disclosure policy.
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