Lemonade Stock Tripled Over the Past 3 Years. Can It Do It Again Over the Next 3 Years?

Lemonade (NYSE: LMND) has become a popular insurance technology company over the past few years. Insurance is an industry full of legacy players, with some giants that are more than a century old, and it was ripe for disruption with the advent of artificial intelligence (AI).

Although it got off to a bumpy start, losing more than 90% of its value at one point, Lemonade stock has made a sustained comeback, up 247% over the past three years. Can it do a repeat performance?

Sweetening the deal

Lemonade is a digital insurance company that relies on AI and machine learning to price policies, onboard customers, and approve claims. This removes human intervention as much as possible, making for a simpler, quicker, and more transparent experience. At some point, it should be cheaper to operate as well.

For now, it's adding customers at a rapid pace, including a 23% year-over-year increase in the 2026 first quarter to over 3 million in total; that's double the count from 2022.

Image source: Getty Images.

In-force premium (IFP), the standard top-line metric for insurance companies, has accelerated over the past 10 quarters, rising 32% year over year in the first quarter, while gross margin improved from 26% to 39%.

The main reason the stock bounced back and has performed so well over the past few years is the improvement in its loss ratio. That measures how much Lemonade pays out in claims, and it's been trending down. At 62% in the first quarter, it's well within the target range and comparable to other insurance companies.

Management believes it has an edge over legacy companies because its digital parts are interconnected and work together. The larger, older companies are all moving toward this model, but even though Lemonade is younger, it has a head start here. Here, being smaller also works in its favor, since it's more agile and can make changes more easily.

What happens next

Right now, Lemonade is still in rollout mode, and it has high expenses. That's eating into its profits, and it's still reporting losses even on an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) basis.

Management is guiding for positive adjusted EBITDA by the end of this year and positive net income next year. From there, it envisions becoming much more profitable as AI and machine learning do their work.

So can Lemonade stock triple over the next three years? It trades at a price-to-sales ratio of 6, which is fair considering its growth. Revenue increased 71% in the first quarter, also an acceleration, so let's choose 50% as a possible compound annual growth rate (CAGR). In that case, trailing-12-month revenue would reach $2.4 billion from $725 million today, and keeping the price-to-sales ratio constant, the stock would indeed triple.

This is just one scenario. Revenue growth could decelerate further, and the price-to-sales ratio could go down. But as it becomes profitable, it's possible the stock could triple over the next three years.

Jennifer Saibil has positions in Lemonade. The Motley Fool has positions in and recommends Lemonade. The Motley Fool has a disclosure policy.