Strong week for Lemonade (NYSE:LMND) shareholders doesn't alleviate pain of one-year loss

By
Simply Wall St
Published
May 18, 2022
NYSE:LMND
Source: Shutterstock

It's nice to see the Lemonade, Inc. (NYSE:LMND) share price up 12% in a week. But that isn't much consolation for the painful drop we've seen in the last year. During that time the share price has plummeted like a stone, down 71%. So it's not that amazing to see a bit of a bounce. The real question is whether the company can turn around its fortunes.

On a more encouraging note the company has added US$137m to its market cap in just the last 7 days, so let's see if we can determine what's driven the one-year loss for shareholders.

See our latest analysis for Lemonade

Lemonade wasn't profitable in the last twelve months, it is unlikely we'll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.

In the last twelve months, Lemonade increased its revenue by 63%. That's a strong result which is better than most other loss making companies. So on the face of it we're really surprised to see the share price down 71% over twelve months. There's clearly something unusual going on here such as an acquisition that hasn't delivered expected profits. What is clear is that the market is not judging the company on its revenue growth right now. Of course, markets do over-react so share price drop may be too harsh.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

earnings-and-revenue-growth
NYSE:LMND Earnings and Revenue Growth May 18th 2022

Take a more thorough look at Lemonade's financial health with this free report on its balance sheet.

A Different Perspective

We doubt Lemonade shareholders are happy with the loss of 71% over twelve months. That falls short of the market, which lost 6.6%. There's no doubt that's a disappointment, but the stock may well have fared better in a stronger market. With the stock down 32% over the last three months, the market doesn't seem to believe that the company has solved all its problems. Given the relatively short history of this stock, we'd remain pretty wary until we see some strong business performance. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Like risks, for instance. Every company has them, and we've spotted 4 warning signs for Lemonade (of which 1 is concerning!) you should know about.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

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