Lemonade Has Momentum, but Investors Need More Than Growth

Over the past year, Lemonade (NYSE: LMND) stock has risen by roughly 95%. However, since the start of the year, this insurance stock has been in a slump. Trading at prices near $100 per share in late January, the stock has since fallen back to the upper-$50s, a significant drop given the relatively short time frame.

Some of this pullback occurred last week, on the heels of the insurance-tech company's latest quarterly earnings release. Yet while some may see that sharp drop as a warning to stay away, a look at the details suggests otherwise.

Why? Lemonade isn't just delivering impressive top-line growth. Looking at other key metrics, the company is also clearly making major progress toward becoming a profitable insurer, on par with its "old school" competitors.

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Lemonade is crushing it on profitability metrics

For the quarter ending March 31, 2026, Lemonade once again delivered strong top-line growth, with revenue rising 71% to $258 million. The company also reported a strong increase in its total in-force premium volume. In-force premiums increased by around 32%, rising to $1.33 billion, from the $1 billion reported for the prior year's quarter.

Again, taking a look at the latest stock chart, you may assume that Lemonade must have done something like report strong top-line growth but an underwhelming bottom line. However, for metrics more relevant to earnings, Lemonade crushed it. For the period, the company reported a net loss ratio, or the percentage of premiums paid out as claims, of just 63%.

Compare that to the prior year's same quarter, when Lemonade's net loss ratio was 82%. With this, it's not surprising that Lemonade not only reported a more than 100% increase in gross profit and a 42.6% drop in net losses, from $62.4 million to $35.8 million.

In short, Lemonade is making big progress in becoming a profitable insurer. So then, why did the stock tank after earnings? Chalk it up to investors taking profit by "buying the rumor" and "selling the news." Earlier this month, the stock did run up from the mid-$50s to the low-$70s, perhaps in anticipation of better-than-expected results.

This could mark just the start

While Lemonade may be pulling back today, don't assume that means weak performance in the long run. Beyond last quarter's improvements to profitability, management has guided for further progress, including Lemonade reaching positive EBITDA by Q4 2026.

Thanks to its use of generative artificial intelligence (GenAI), not just with customer onboarding, but across other functions as well, Lemonade is scaling up with high efficiency. Similar to SoFi Technologies in banking, Lemonade could continue to win over younger customers with its renters, pet, and auto insurance policies, threatening market incumbents like Allstate and Progressive.

Also like SoFi, a strong performer among fintech stocks, further high double-digit sales growth could translate into exponential earnings growth. Lemonade may trade for 60 times estimated 2028 earnings, but during this phase, the stock could sustain a rich forward multiple.

With this in mind, you may want to capitalize on this growth stock's short-term weakness.

Thomas Niel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Lemonade and Progressive. The Motley Fool has a disclosure policy.