Todd Gordon is adding to this AI financial services play caught up in Tuesday’s selloff
The financial services industry has quietly become an artificial intelligence battleground and Lemonade, ticker LMND , is back in focus putting the ‘squeeze’ on the massive insurance industry that is seen as analog in the new digital world. The company IPO’d in the summer of 2020 (ouch) and dropped over 80% into the lows set in late 2023. But the company is back on a strong growth trajectory, fueled by the AI boom that could possibly disrupt the antiquated insurance industry that has incumbents with large market share, but are slow to evolve. Lemonade, which reports earnings before the bell Wednesday, is one of the most aggressive adopters of AI in the financial services space aiming to rewrite the economics of insurance from pricing, underwriting, to claims automation. The company is targeting younger customers who are comfortable in the digital world shopping for car, renters, or home insurance. The younger target market will have a higher lifetime value and a lower cost of acquisition than traditional insurance models. Lemonade has a fully custom tech stack that has changed the insurance experience including a fully digital onboarding and underwriting workflow. Turning to the technicals you’ll quickly notice the massive drop from 2020 to 2023 followed by a double bottom and a new uptrend. The uptrend can be measured as a percentage of how much the 2020-2023 decline has been ‘retraced’ using Fibonacci retracements. So far, the chart has recaptured 61.8% of the loss where it’s currently consolidating at around $62.00. If the stock can withstand this broader market volatility and continue through the $60s, the next top is the final retracement at $101.11. Looking at the earnings and sales tables on the right side of the chart you’ll see the company is still not profitable on a yearly basis, but the revenues are growing at pretty remarkable rates. Thirty-six percent growth is expected in 2025, which is then expected to accelerate to 64.59% growth next year. At the top of that table of the quarterly EPS surprises, see that even though the company is still losing money, they have beat analyst expectations in the prior 3 quarters by 25.27%, 8.97%, and 32.74%. In the race to widescale AI adoption and legacy business model disruption, this momentum-driven market is more focused on topline growth. It won’t be forever, but it is now, so we must trade and invest in the market we have. And this market requires aggressive and decisive behavior with embedded risk management. The daily chart shows the triple top consolidation born in August through today below that 61.8% retracement on the weekly. With Tuesday’s Palantir driven selloff from fear of richly valued AI growth stocks, LMND is showing impressive relative strength down only 2.5% as I type. We’ve been holding LMND in our Tactical Alpha Growth (TAG) portfolio since our Sept 15 rebalance and just today we added a half size position to our Active Opps portfolio with stop losses around $55.00. If we can get the ‘squeeze’ up and through $62.00 we’ll add the other half and trail stop losses today’s entry price. -Todd Gordon, Founder of Inside Edge Capital, LLC We offer active stock alerts , portfolio management, as well as regular market updates like the idea presented above. DISCLOSURES: Gordon owns LMND personally and in his wealth management company Inside Edge Capital. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
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