The Wild Ride: From $17 to $53 and Back
Alright, let’s talk about Lemonade ($LMND). If you’re a Tesla diehard, I know—this might not be the juicy AI and FSD drama you’re here for, but stay with me. There’s a reason this sleeper stock has our attention, and no, it’s not because we’re bored and need something to do between Tesla earnings calls.
A couple of months ago, Lemonade went full SpaceX mode—launched from $17-ish to a peak of $53, then promptly burned some fuel and came back down to earth around $31. Classic market overreaction. But here’s the thing: we weren’t just along for the ride. We saw that run-up, took some profits for clients, and then? We doubled down on our conviction. Our base case valuation was $83 a share. Now? We’re looking at $100. And if management follows through on even half of what they’ve promised? $130 isn’t out of the question. That’s not just optimism—that’s math.
Why the Drop? Blame Market Physics and Panic
So why did the stock take a hit? A few reasons. First, basic market physics—stocks that triple in a month don’t just keep levitating. Some retracement was inevitable. Second, the California wildfires freaked people out. Insurance company + natural disaster = panic, right? But dig a little deeper, and it looks like the actual impact on Lemonade’s numbers might be minimal. If Q4 plays out the way we think it will, the company could shake off those bear arguments like a wet dog.
The Short Squeeze Setup? Hello, 30% Short Interest
Speaking of bears, let’s talk about short interest. It’s sitting at around 30%. For context, Tesla in 2019 had similar short interest before it went on an absolute tear. And guess who’s lurking around the short side? Jim Chanos. Yeah, the same guy who bet against Tesla all the way up. He even slid into our mentions on X (hi, Jim!) asking about Lemonade’s combined ratio. And then, hilariously, provided all the numbers we needed to prove our own thesis. Thanks for that.
The Sleeper Stock Trend: Cutting Losses, Scaling Up
Quick breakdown: combined ratio (which is basically how much an insurer pays out in claims versus what they make in premiums) was a horror show at 140% in Q3 2023. But by the end of Q3 2024, it was down to 120%. Translation? The business is scaling. And if they keep this trend going, we could see it dip below 110% soon—getting them much closer to profitability.
But What About Customer Acquisition Costs?
But wait, the bears say, you’re ignoring customer acquisition costs! Well, yeah. Because acquiring customers isn’t some random unavoidable expense, it’s a strategic investment. You don’t scream about Tesla’s CapEx on factories without looking at future output, right? Same logic applies here. Lemonade takes the hit upfront but locks in customers with a ridiculously high IRR (internal rate of return). How high? Triple digits. Yes, 100%+ returns on customer acquisition. If you understand finance, that should make you sit up a little. If you don’t, just know that it’s absurdly good.
The Bottom Line: This Could Be Tesla 2018 All Over Again
And it’s not just Lemonade saying this. General Catalyst, a serious institutional player, is backing this with actual money. They’re lending against these customer economics because they’ve seen the data. If Lemonade’s numbers were smoke and mirrors, that’d be fraud, not just bad business. And I don’t think anyone’s ready to claim fraud here.
So where does this leave us? You’ve got a company that’s scaling, cutting losses, and spending aggressively to build a dominant position—just like Tesla in its early days. It’s ugly in the short term, but that’s how these things work. And once they hit that inflection point? That’s when the fun starts.
Buckle up.
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