Risk/Reward Rating: Negative
Lemonade is an unprofitable insurance company that has decided to market its stock directly to retail investors. This decision could leave a sour taste with investors as insiders control one-third of the company’s shares. Retail investors currently own one-third of the shares as executives are pitching the stock to them in ‘simple terms’ creating a conflict of interest given the information asymmetry between the insiders and retail investors.
If things turn south for Lemonade’s stock price, the backlash from retail investors, who are potential Lemonade insurance customers, could create a negative feedback loop between the company’s share price, its business results, and management credibility. The unprofitable nature of the insurance operations combined with an extreme valuation makes this negative feedback loop a real possibility.
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