Institutional investors may adopt severe steps after Lemonade, Inc.'s (NYSE:LMND) latest 19% drop adds to a year losses

By
Simply Wall St
Published
November 24, 2021
NYSE:LMND
Source: Shutterstock

If you want to know who really controls Lemonade, Inc. (NYSE:LMND), then you'll have to look at the makeup of its share registry. And the group that holds the biggest piece of the pie are institutions with 42% ownership. That is, the group stands to benefit the most if the stock rises (or lose the most if there is a downturn).

As a result, institutional investors endured the highest losses last week after market cap fell by US$732m. This set of investors may especially be concerned about the current loss, which adds to a one-year loss of 28% for shareholders. Also referred to as "smart money", institutions have a lot of sway over how a stock's price moves. As a result, if the downtrend continues, institutions may face pressures to sell Lemonade, which might have negative implications on individual investors.

Let's take a closer look to see what the different types of shareholders can tell us about Lemonade.

View our latest analysis for Lemonade

ownership-breakdown
NYSE:LMND Ownership Breakdown November 24th 2021

What Does The Institutional Ownership Tell Us About Lemonade?

Institutions typically measure themselves against a benchmark when reporting to their own investors, so they often become more enthusiastic about a stock once it's included in a major index. We would expect most companies to have some institutions on the register, especially if they are growing.

We can see that Lemonade does have institutional investors; and they hold a good portion of the company's stock. This suggests some credibility amongst professional investors. But we can't rely on that fact alone since institutions make bad investments sometimes, just like everyone does. It is not uncommon to see a big share price drop if two large institutional investors try to sell out of a stock at the same time. So it is worth checking the past earnings trajectory of Lemonade, (below). Of course, keep in mind that there are other factors to consider, too.

earnings-and-revenue-growth
NYSE:LMND Earnings and Revenue Growth November 24th 2021

We note that hedge funds don't have a meaningful investment in Lemonade. Softbank Group Capital Limited is currently the company's largest shareholder with 19% of shares outstanding. Meanwhile, the second and third largest shareholders, hold 8.2% and 5.5%, of the shares outstanding, respectively. Shai Wininger, who is the third-largest shareholder, also happens to hold the title of Member of the Board of Directors.

On further inspection, we found that more than half the company's shares are owned by the top 8 shareholders, suggesting that the interests of the larger shareholders are balanced out to an extent by the smaller ones.

Researching institutional ownership is a good way to gauge and filter a stock's expected performance. The same can be achieved by studying analyst sentiments. There are plenty of analysts covering the stock, so it might be worth seeing what they are forecasting, too.

Insider Ownership Of Lemonade

While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. Company management run the business, but the CEO will answer to the board, even if he or she is a member of it.

Insider ownership is positive when it signals leadership are thinking like the true owners of the company. However, high insider ownership can also give immense power to a small group within the company. This can be negative in some circumstances.

We can report that insiders do own shares in Lemonade, Inc.. This is a big company, so it is good to see this level of alignment. Insiders own US$210m worth of shares (at current prices). If you would like to explore the question of insider alignment, you can click here to see if insiders have been buying or selling.

General Public Ownership

With a 28% ownership, the general public, mostly comprising of individual investors, have some degree of sway over Lemonade. While this size of ownership may not be enough to sway a policy decision in their favour, they can still make a collective impact on company policies.

Private Equity Ownership

Private equity firms hold a 19% stake in Lemonade. This suggests they can be influential in key policy decisions. Sometimes we see private equity stick around for the long term, but generally speaking they have a shorter investment horizon and -- as the name suggests -- don't invest in public companies much. After some time they may look to sell and redeploy capital elsewhere.

Private Company Ownership

It seems that Private Companies own 4.3%, of the Lemonade stock. It might be worth looking deeper into this. If related parties, such as insiders, have an interest in one of these private companies, that should be disclosed in the annual report. Private companies may also have a strategic interest in the company.

Next Steps:

It's always worth thinking about the different groups who own shares in a company. But to understand Lemonade better, we need to consider many other factors. Take risks for example - Lemonade has 5 warning signs (and 1 which is a bit concerning) we think you should know about.

If you are like me, you may want to think about whether this company will grow or shrink. Luckily, you can check this free report showing analyst forecasts for its future.

NB: Figures in this article are calculated using data from the last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. This may not be consistent with full year annual report figures.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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