The equilibrium price of the Lemonade Inc. (LMND) is 30 percent cheaper than the present market price
Online insurer Lemonade, which this year held one of the most profitable IPOs on the US market, ended its listing with a decline of 14%. The company’s shares fell sharply on the NYSE and proceeded to decline on Tuesday, losing even more than 5 percent, following the outcome of the last session on Monday before the end of the lock-up time. The decrease was attributed to the anticipation of high sales from the original placement applicants, who were obligated to retain their role in this stock according to the arrangement with the underwriter until Tuesday 29 December. In total, 44 million shares worth about $4.5 billion were held by Lemonade IPO members.
The news is noteworthy because, in the middle of a pandemic, Lemonade becomes the first corporation of the year to threaten an IPO. When it went on the stock market in July, the shares exceeded the initial valuation by 300 percent. The stocks cost $16 for the IPO members, increased to $81 each during the first week, fell below $47 by November, but they were granted $135 in December, that is, 8.4 times more than on the placement itself. The current drawdown does not, however, contradict the fact that the IPO has been over-successful.
The Lemonade scenario does not ensure that the same dynamics will be replicated for all businesses joining the industry after 2020, but this situation can also be called a reference point. If an insurer has a stable client base and years of honed technologies (Lemonade has a smartphone chatbot insurance and artificial intelligence that assesses the risks and costs of the policy), so in contrast to classic firms, the market offers a decent premium and holds that premium for several months.
This would lead to a boost in sales from the present $300 million a year to $50-100 billion, even though Lemonade will only eat up 5-10 percent of the insurance industry in the United States. The company’s valuation will rise several times in the long run. Around the same time, the stock could also decline in price on the horizon for the next year, including due to a lack of profit. The Lemonade equilibrium price is 30 percent cheaper than the current market price-approximately $75 per share. At a level closer to these values, the stock is worth keeping in your portfolio.
