Here's Why Lemonade Stock Is Soaring on Tuesday

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What happened

The stock market was having a solid session on Tuesday, with all three major averages in positive territory at 1:30 p.m. ET. However, insurance technology company Lemonade (NYSE:LMND) was a big outperformer, with shares jumping 10%.

So what

First of all, it’s important to keep today’s move higher in perspective. Lemonade is still more than 75% below its all-time high even after today’s bounce.

Image source: Getty Images.

Second, there isn’t any notable company-specific news propelling Lemonade higher. And unlike many other stocks moving today, there aren’t any major analyst upgrades, either. Instead, there’s a massive rally happening in high-growth tech stocks that have been beaten down in recent months, and Lemonade certainly belongs to this group. Fears about inflation and rising interest rates have weighed on speculative stocks recently, and the benchmark 10-Year Treasury yield has pulled back significantly from its peak, so it seems to be calming investors down.

Now what

As mentioned above, Lemonade is still down significantly from its highs, and there are a few reasons. With loss ratios coming in a little elevated in recent quarters, investors are wondering if Lemonade can be consistently profitable with its current unusual insurance business model. And there are also worries about Lemonade’s ability to translate its success with low-cost renters insurance to the auto insurance business, which is the company’s main growth focus. We’ll get some more color when Lemonade’s fourth-quarter results are released in a few weeks, as this will be the first report since the company officially rolled out its Lemonade Car product in November.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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