LMND Surges 97% Year to Date: How Should You Play the Stock?

Shares of Lemonade Inc. LMND have skyrocketed 96.7% year to date, outperforming the industry’s increase of 12.4%, the Finance sector’s rise of 14.6% and the Zacks S&P 500 composite’s gain of 18.5% in the said time frame. 

Lemonade offers renters, homeowners, pet, car and life insurance backed by artificial intelligence and behavioral economics. It operates through full-stack insurance carriers in the United States, the United Kingdom and Europe.

LMND vs Industry, Sector, S&P 500 YTD

Its peer Root Inc. ROOT, a provider of automobile and renters insurance products, envisions being the largest and most profitable personal lines insurance carrier in the United States. It has gained 6% year to date. Another of LMND’s peers, EverQuote Inc. EVER, an online insurance marketplace, has gained 35.8% in the same time frame.

What’s Driving LMND?

Lemonade has expanded beyond renters and homeowners insurance into auto (Metromile buyout), pet, and life coverage, broadening its revenue base and lowering reliance on any single product. Its strong retention and subscription-based model support recurring, steadily growing revenue as customers remain engaged and add new insurance lines over time. Management projects 2025 revenues between $727 million and $732 million. 

Its Car segment continues to deliver better than expected. Management expects car growth to continue to accelerate, fueled in part by TAM expansion from new state launches and increased brand/growth investment. 

Third quarter in-force premium (IFP) grew to $1.16 billion, marking the eighth straight quarter of accelerating growth. A compelling product portfolio, AI-powered improvements in segmentation and pricing continued to support the improvement.  Management estimates year-end IFP between $1.218 billion and $1.223 billion and FY 2026 IFP growth of 30%.

Its reinsurance agreements help stabilize results by shifting a significant share of claims costs to reinsurance partners, reducing earnings volatility.
Being a technology-driven insurer, it has been making continuous investments in digitization. Management stated that investment in automation has been paying off, and despite its relatively small size in comparison to the largest U.S. carriers, it has reached an impressive efficiency with loss adjustment expense or LAE of 7%, on average, across all its products. LAE measures the cost of handling claims as a percentage of premiums. Notably, over the past three years, LMND has improved its LAE ratio by 600 basis points.

Geographic expansion continues to be a growth lever for Lemonade. Europe diversifies its growth opportunity beyond the United States, with lower catastrophe exposure and a favorable regulatory environment.

However, Lemonade is yet to be profitable. But with improved margins, positive free cash flow, and disciplined expense control, management targets adjusted EBITDA breakeven by 2026.

Estimate Revision Trend

The Zacks Consensus Estimate for LMND’s 2025 earnings has moved north while that for 2026 has moved south in the past 30 days.

The consensus estimate for Root’s 2025 and 2026 earnings has witnessed southward movement in the past 30 days. Estimates for EverQuote’s 2025 and 2026 earnings have been northbound in the same time frame.

Optimistic Growth Estimates for LMND

The Zacks Consensus Estimate for the company’s 2025 and 2026 earnings indicates a 16.8% and a 32.3% year-over-year increase, respectively. The consensus estimates for 2025 and 2026 revenues suggest year-over-year improvements, too. LMND has a Growth Score of A.

LMND Shares Are Expensive

The stock is overvalued compared to its industry. It is currently trading at a price-to-book multiple of 10.33, higher than the industry average of 2.4. 

LMND is expensive when compared with Root and EverQuote.

How to Play LMND Stock

Lemonade is pursuing growth by acquiring profitable businesses and prioritizing its car insurance segment, which it expects to be a key driver of growth. Alongside diversification into renters, homeowners, pet and life insurance, the company seeks to expand its market presence. Leveraging technology and AI for efficiency and a competitive edge, Lemonade aims to scale operations and achieve significant expansion. Lemonade has set a target of growing in-force premiums by 30% in 2026, supporting its ambition of tenfold growth. Its VGM Score of B instills confidence. 

However, given a premium valuation, it is wise to adopt a wait-and-see approach for this Zacks Rank #3 (Hold) insurer. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research