Lemonade (NYSE:LMND) Slips on Lockup Expiry, Stages Recovery

It's always great to hear about how you can't keep a good stock down for very long. While basic elements of supply and demand do still apply—a relief to everyone who found that Economics 101 principles don't always survive contact with the real world—sometimes the world operates a little beyond that. We saw as much in recent days as Lemonade (NYSE:LMND) stock was about to become a lot more widely available, yet didn't suffer near so badly in its value as some might have expected.

Supply and Demand, Usually

The key issue for Lemonade was that its lockup period was about to expire. When that happened, several insiders were poised to sell off some of their stock and put a big new bloc of same out into the open market. Thinking back to our collegiate days of Economics 101—or whatever the local equivalent was called at your school—makes the outcome of such a move clear: anything that is less scarce is inherently less valuable because there's more of it available.

With around 44 million new shares set to go on sale today, the predictable appears to have happened, at least in the short term. Back on Christmas Eve, the company lost about 7% of its value. Yesterday, another 14% boiled off as Lemonade stock was about to be as widely available as the drink that bears its name. However, early trading today saw the stock make something like a recovery—actually, about three so far when you look at the very saw-toothed graph for today's trading—to sell at $114.66 as of this writing. Given that it closed yesterday at $107.67, that's a recovery already in progress.

Analysts Lightly Traveled, Holding Out

The analyst picture, meanwhile, has been a pretty mixed one over the last 90 days. Based on our latest research, the company is currently at a “hold” consensus rating, with two “sell” ratings, four “hold” and two “buy”, which is about as split a decision as you can get. Meanwhile, 90 days ago, the company had the same proportions, but only one “sell” and “buy” rating each.

Interestingly, the price target has also been bouncing around, yet with little reflection of the current reality. Currently, the stock's consensus price target sits at $83.80. That's significantly up from the price target 30 days ago, which was $77. That, in turn, was also significantly down from the price target of 90 days ago, where it was $86. That's actually closer in line with what the price target is today, but none of the three are anywhere near the price we're currently seeing in trading.

A Recovery Based on Quality, Not Quantity

So with 44 million shares potentially coming back on the market, and the laws of supply and demand still being a thing, how can we account for the recovery in the stock price that we've seen of late? How can we account for the current stock price that's defying consensus price targets and has been for some time?

One of the biggest points to remember is that Lemonade has already had a banner year, and this while being surrounded by a thoroughly terrible year for just about everybody. Lemonade shares are up in excess of 300%, reports note, of the IPO price back in July. That's a good point by itself—and one that suggests some retraction of price is potentially in play—but the company itself makes its stock look reasonably attractive.

Lemonade functions as basically an online insurance superstore, offering renter and homeowner insurance readily accessible online. Also, the company turns to chatbots to handle some queries, which if done correctly, is a great cost-saving move. Chatbots don't require pay, and they can readily handle simple matters, which means there's no need to pay for a person to handle the easy stuff. Lemonade also uses an artificial intelligence (AI) platform to help customers find the best-fitting deals rapidly, which makes it a solid performer in customer services as well. The belief among investors that Lemonade could branch out into other forms of insurance—auto insurance, life insurance and health insurance could all be on the list—only improves the perception.

Anyone who's shopped for insurance lately knows how hard it is. Trying to get a simple price out of someone is an ordeal that requires forms and phone calls and basically handing over your personal information to be put on a list and resold to every other company forever. Anything that simplifies a process—and Lemonade seems to have just that—will make a good draw.

So yes, the stock has taken a hit in recent days because it's about to become a lot more available. Considering what Lemonade is, and does, however, will make for a much more appealing proposition. Watch for the dip to subside—it may already have—and then consider picking up some Lemonade for a refreshing addition to your portfolio.