Is It Too Late to Buy Lemonade Stock?

When investors think of buying businesses at the leading edge of artificial intelligence (AI), hyperscalers might be the first to come to mind. But don't forget Lemonade (NYSE: LMND), which is leveraging this new technology throughout its entire organization.

The innovative insurance business is a disruptive force that's taking the industry by storm. Its growth is tremendous. And the market is taking notice. Shares have surged 249% in the past three years (as of June 26).

Is it too late to buy this fintech stock?

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Betting it all on AI

Lemonade operates with the primary goal of providing the best insurance experience for its customers. There are no physical branches or sales agents. It's a digital and direct-to-consumer business model with AI at the core. That focus on applying AI makes complete sense given how data-heavy this industry is, with proper risk management being a non-negotiable priority.

The company's adoption has been unbelievable. As of March 31, Lemonade had over 3.1 million customers. This is about 182% higher than the 1.1 million it had five years earlier. In-force premiums soared 429% during that time, which propelled revenue 11-fold.

Younger consumers are flocking to the platform. Lemonade says that 70% of its policyholders are under the age of 35. Compared to traditional rivals, this is 10 years younger. This is a very attractive setup for the business, as it can establish a relationship early on and offer insurance products at various stages of customers' lives.

If investors already have meaningful exposure to Nvidia or the top cloud computing stocks and want to find under-the-radar AI opportunities, it's hard not to come away impressed by what Lemonade has built. Although not known for being tech-savvy and forward-thinking, insurance is a huge market that Lemonade is entering.

Investors should focus on profits

No one will argue with the view that Lemonade has found product-market fit. However, a huge unanswered question remains: Will the company ever become consistently profitable? The investment thesis rests on this unknown.

Management believes Lemonade will record positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in the fourth quarter of this year for the first time. That's a step in the right direction, but investors shouldn't put too much weight on this metric.

The consensus view among Wall Street sell-side analysts, professionals who follow this company closely, is that Lemonade won't register positive earnings per share until 2028. That means investors will have to deal with net losses in the meantime.

After a monster 249% trailing-three-year gain, it might be too late to buy this exciting growth stock. That stance could change once investors have clear visibility into Lemonade's earnings trajectory.

Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Lemonade and Nvidia. The Motley Fool has a disclosure policy.