Lemonade Stock Is Down 40%. Here's What It Would Take to Rise Higher.

Lemonade (NYSE: LMND) has been an outstanding stock to own over the past three years, with a 229% gain, inclusive of its recent 40% drop from its 2025 high.

It's just over a decade old, and it already has over 3 million customers. Growth has been strong from the get-go, and it's been accelerating over the past few years. But clearly, the market is looking for something else right now. Here's what it would take for Lemonade stock to move higher.

High growth, low loss ratio

Lemonade's in-force premium growth has been accelerating for the past eight quarters, reaching 32% in the 2026 first quarter. Customer count was up 23% year over year, while premium per customer increased 7% to $424.

Image source: Getty Images.

CEO Daniel Schreiber recently penned an essay called "Why Incumbents Won't Catch Up," explaining why Lemonade has an edge over legacy insurers. He explains that it was built on a digital substrate that incorporates a range of interconnected artificial intelligence (AI) and machine learning processes. "Lemonade did not begin as an insurance company that adopted AI. We began as an AI-native company that entered insurance," he says.

Beyond its chatbots, which onboard customers and review claims without human intervention -- with approvals coming as fast as one minute -- Lemonade sees its edge in its underwriting and the interconnected nature of its business. Everything goes much faster and becomes more accurate.

That's most noticeable right now in the company's loss ratio. As more data enters the system and Lemonade upgrades its algorithms, the loss ratio, which measures the percentage of policies paid out in claims, has been declining. The gross loss ratio improved from 78% last year to 62% in the 2026 first quarter, well below the company's 70% target.

What's holding Lemonade stock back?

What hasn't happened yet is Lemonade turning a profit. As it scales, revenue growth is leading to improvement on the bottom line, but it's still not positive. Gross profit increased 159% year over year in the first quarter, driven by higher revenue and a lower loss ratio, and adjusted free cash flow was $17 million. But it's still reporting losses even on an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) basis, and as the stock climbed, it was becoming more expensive.

It now trades at a price-to-sales ratio of 6, which I see as very reasonable for a growth stock. However, the market is waiting for profits. Lemonade's management is guiding for positive adjusted EBITDA by the end of the year, which might be what it takes to get the price moving again.

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