If you invested $1,000 in Lemonade’s IPO, today’s investment is:

Companies that recently went public with initial public offerings (IPOs) are all the rage in 2021. Every day, the stock prices of newly public companies skyrocketed.

One company that had early success was lemonade (LMND 3.90%), is a start-up insurance company looking to upend the industry. The company has a compelling mission to be an insurance company with heart and brains. But during this year and a half, turmoil ensued.

Investing $1,000 in an IPO would have been a roller coaster ride. Here’s why:

Lemonade: Insurance Company with Conscience

Lemonade’s mission is to reimagine the way people buy insurance. The company uses data and artificial intelligence (AI) to help customers buy insurance for renters, homeowners, pets, and cars.

Aims to appeal to younger generations by using vast amounts of data to help customers easily retrieve policies and resolve claims, with a fast process and donating surplus profits to charity I’m here.

If you invested in an IPO, you could make this much money today

If you invested on the day Lemonade’s IPO went public on July 2nd, 2020, you would have screwed up. A $1,000 investment in Lemonade would have peaked at over $2,400 in early 2021 as investor optimism pushed the stock higher. The investment is currently worth $332.

As a long-term investor, it is essential to know that IPO stocks are risky. That means you are more likely to endure emotional ups and downs. That’s why it’s important to diversify your investments and spread your stock investments across his 25+ stocks.

The business was tested early on

Early in its history, Lemonade focused primarily on renter and homeowner insurance. The idea was that the company’s target customers, millennials and Gen Z, would buy rental home insurance from Lemonade, and then homeowners and other insurance.

Lemonade faced its first big test as a public company in early 2021 when winter storms hit Texas and Oklahoma. An unexpected storm hit Lemonade, costing it nearly $7 million.

The net loss ratio is an important metric used by insurers to ascertain the profitability of underwriting policies. This ratio is the total loss paid, net of reinsurance, divided by premiums earned. With an industry average loss rate of 71% over the past three years, Lemonade management aims to keep his below 75%.

In 2021, the lemonade loss rate jumped to 120% in the first quarter from 72% in the same period last year. That made the stock plummet.

Data Source: Lemonade Regulatory Submissions. Industry data from the National Association of Insurance Commissioners. Chart by author.

Management told investors that part of the loss was also due to the company’s expansion of its product offerings in homeowners and pet insurance. Prior to 2021, his two-thirds of the contract was lessee insurance. These now make up less than half of the policies.

What to look for before buying lemonade

The company expanded its auto insurance business last year by agreeing to buy Metromile for $500 million in an all-stock deal. The move will accelerate Lemonade’s foray into his $300 billion market.

Both companies have similar goals, as Metromile also leverages data and AI to create policies. But Metromile is also struggling to turn a profit, and the combined company still has a long way to go before it becomes profitable.

Lemonade will continue to experience growing pains as it expands its business. That’s why I’m avoiding that company for now. This could ultimately lead to higher prices for this disruptive fintech’s next move.