When You Squeeze Lemons You Get ... Lemonade (LMND)

Hi all, I'm here to share with you what I think is an excellent candidate for a short squeeze. Quick background, I work as an actuary for a consulting firm. As an actuary, I have dedicate a large portion of my life to studying the insurance industry. A lot of people don't know what an actuary is, but essentially we use economics, math, statistics and probability to model insurance practices. We also have a duty to be knowledgeable on the qualitative and regulatory aspects of insurance. Company Background: Aside from the short-squeeze potential, I think Lemonade is a strong company. Lemonade is a start-up insurance company that is looking to disrupt the industry. They use tech, AI, and behavioral economic theory to run their practice. I believe this company will disrupt in the long-term for the following reasons: They are EFFICIENT. Efficiency is the name of the game in insurance. A lot of people think insurance premiums are increased to line the pockets of shareholders but that is not true. The insurance market is fiercely competitive, and premiums are not often set to inflate profits, but rather as a response to to changes in underlying assumptions. Common assumptions are trend (inflation), investment income, incidence rate, and administration expenses. I would like to highlight administration expenses because unlike the other assumptions I mentioned, admin expense is the only assumption the insurer can actually control! By using technology and AI, Lemonade has to hire less claim adjudicators, brokers, and underwriters making them far more efficient than other insurers. The insurance industry as it stands today is old-fashion and unwilling to adapt. Frankly, people should be upset. Everyone needs insurance, and policyholders are paying higher premiums because these insurance companies are inefficient. Lemonade solves this pain point. High inflation puts upward pressure on premiums. When premiums increase, people will look for lower-cost alternatives. Simple. They are attempting to "sweeten" the insurance industry by creating a healthier relationship between the policyholder and the insurance company. They are making it easier to pay claims and be approved by using their technology, and by having a lighter approval policy. They also pay a portion of surplus to a charity of the policyholder's choice which is meant to counteract this lighter policy by instilling a sense of duty on the part of the policyholder to not embellish claims. I'm not qualified to speak on this strategy as I am not a behavioral psychologist, but they do have an in-house cognitive psychology PhD, Dan Ariely, who guides this strategy. From what I understand, this strategy is an attempt to build trust between the policyholder and insurer. This strategy in theory should reduce administration expenses and litigation expenses as well, EFFICIENCY. The Short Squeeze: https://finviz.com/quote.ashx?t=LMND Look for yourself, short ratio of 7, 32.63% short float, low volume. Not much to elaborate on here. Potential catalyst: Next earnings report in February they will be wiping a disastrous quarter off their TTM in which they were hit hard by the Texas freeze. Lemonade was hit especially hard because they are not yet geographically diversified in the USA due to the fact that they are still expanding. Bear case - important to add at a dose of realism to every conviction so here is it: Lemonade could be entirely missing the mark on what the market deems desirable in an insurance company. They could also expose themselves to fraud if their behavioral economic theory proves to be faulty. They need to see stronger growth in the next few quarters. They did not grow as quickly as I would have liked in the past year. High interest rates prove as a challenge to growing companies. Edit: šŸ™‰šŸ™‰šŸš€šŸš€šŸŒššŸŒš

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When You Squeeze Lemons You Get ... Lemonade (LMND)

bullish

Hi all, I'm here to share with you what I think is an excellent candidate for a short squeeze.

Quick background, I work as an actuary for a consulting firm. As an actuary, I have dedicate a large portion of my life to studying the insurance industry. A lot of people don't know what an actuary is, but essentially we use economics, math, statistics and probability to model insurance practices. We also have a duty to be knowledgeable on the qualitative and regulatory aspects of insurance.

Company Background:

Aside from the short-squeeze potential, I think Lemonade is a strong company. Lemonade is a start-up insurance company that is looking to disrupt the industry. They use tech, AI, and behavioral economic theory to run their practice. I believe this company will disrupt in the long-term for the following reasons:

  • They are EFFICIENT. Efficiency is the name of the game in insurance. A lot of people think insurance premiums are increased to line the pockets of shareholders but that is not true. The insurance market is fiercely competitive, and premiums are not often set to inflate profits, but rather as a response to to changes in underlying assumptions. Common assumptions are trend (inflation), investment income, incidence rate, and administration expenses. I would like to highlight administration expenses because unlike the other assumptions I mentioned, admin expense is the only assumption the insurer can actually control! By using technology and AI, Lemonade has to hire less claim adjudicators, brokers, and underwriters making them far more efficient than other insurers.
  • The insurance industry as it stands today is old-fashion and unwilling to adapt. Frankly, people should be upset. Everyone needs insurance, and policyholders are paying higher premiums because these insurance companies are inefficient. Lemonade solves this pain point.
  • High inflation puts upward pressure on premiums. When premiums increase, people will look for lower-cost alternatives. Simple.
  • They are attempting to "sweeten" the insurance industry by creating a healthier relationship between the policyholder and the insurance company. They are making it easier to pay claims and be approved by using their technology, and by having a lighter approval policy. They also pay a portion of surplus to a charity of the policyholder's choice which is meant to counteract this lighter policy by instilling a sense of duty on the part of the policyholder to not embellish claims. I'm not qualified to speak on this strategy as I am not a behavioral psychologist, but they do have an in-house cognitive psychology PhD, Dan Ariely, who guides this strategy. From what I understand, this strategy is an attempt to build trust between the policyholder and insurer. This strategy in theory should reduce administration expenses and litigation expenses as well, EFFICIENCY.

The Short Squeeze: https://finviz.com/quote.ashx?t=LMND

  • Look for yourself, short ratio of 7, 32.63% short float, low volume. Not much to elaborate on here.

Potential catalyst:

  • Next earnings report in February they will be wiping a disastrous quarter off their TTM in which they were hit hard by the Texas freeze. Lemonade was hit especially hard because they are not yet geographically diversified in the USA due to the fact that they are still expanding.

Bear case - important to add at a dose of realism to every conviction so here is it:

  • Lemonade could be entirely missing the mark on what the market deems desirable in an insurance company. They could also expose themselves to fraud if their behavioral economic theory proves to be faulty.
  • They need to see stronger growth in the next few quarters. They did not grow as quickly as I would have liked in the past year.
  • High interest rates prove as a challenge to growing companies.

Edit: šŸ™‰šŸ™‰šŸš€šŸš€šŸŒššŸŒš

read-time
3 min
40.00
Target Price
7/ 10
Confidence
6-12 Months
Timeframe
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Earnings Release
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News
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SEC
Filing
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