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Lemonade uses AI and machine learning to build a better, cheaper insurance model.
Its loss ratio has come down significantly.
Management is projecting positive adjusted EBITDA this year.
Lemonade (NYSE: LMND) stock is out of the dumps as its model is finally demonstrating value, and it's trading up 383% over the past two years. However, I don't think its run is over. I predict that it will surpass a specific milestone and go even higher in 2026.
Image source: Getty Images.
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Lemonade was built on a digital substrate to completely change how insurance is done. It offers an insurance platform based on artificial intelligence (AI) and machine learning, relying on chatbots for onboarding and claims fulfilment.
Turning these processes over to technology instead of needing human intervention makes them faster, cheaper, and more pleasant for many consumers who find dealing with insurance a daunting prospect, and they should ultimately be more accurate as well.
Investors have been waiting for the company to demonstrate that it can do a better job, shown by a lower loss ratio and increasing profits, and it's finally coming through. In the 2025 third quarter, for example, the trailing 12-month loss ratio fell by a full 10 percentage points, from 77% to 67%. That's incredible progress, and investors see how much better it can get as it keeps feeding more data into its system.
However, the company is still not profitable. Management has guided for positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for 2026, and it's aiming for positive net income in 2027. If it can reach its goal for this year, the stock should soar again in 2026, and over the long term, it could be a standout stock to own.
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Jennifer Saibil has positions in Lemonade. The Motley Fool has positions in and recommends Lemonade. The Motley Fool has a disclosure policy.
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