Why Root Is A Better Bet Than Lemonade Among Insurtech Stocks

Insurtech stocks Lemonade Inc LMND (down 1.8%) and Root Inc ROOT (up 11%) were mixed Friday after the two companies received some mixed commentary on Wall Street.

Disappointing Download Data: On Friday, Bank of America analyst Joshua Shanker said the latest app download data is not good news for Lemonade.

Lemonade app downloads were down 11% year-over-year in January and February. Shanker also said that year-over-year decline increased to between 15% and 16% in the first two weeks of March, and said the data “suggest a weak 1Q21 for Lemonade.”

Related Link: Why The Insurance Industry's Digital Future Is Set To Explode — In A Good Way

“We believe this is of particular interest because Lemonade guided 2021 to what we describe as a slow start to 2021 with growth accelerating throughout the year,” Shanker said.

Instead, the data appears to be trending in the opposite direction.

Through the first 10 weeks of 2021, Shanker said Root app downloads are down about 50% from a year ago. However, unlike Lemonade, he said downloads are actually up 23% in the past two weeks compared to a year ago.

Unfortunately for investors of both companies, Shanker said their longer-term outlooks appear challenged.

“We believe both companies to be overvalued as their cost to acquire business may exceed the value of those customers,” he said.

Bank of America has an Underperform rating and $29 price target for Lemonade and an Underperform rating and $9 target for Root.

See Also: Lemonade Home Insurance Review

Citron’s Take: The latest commentary from Bank of America comes just a day after Citron Research’s Andrew Left called Root a “misunderstood short.”

Left said Root is now the most shorted stock in North America with a market cap of at least $1 billion, according to S3 Partners. Left said Root’s short percent of float is now somewhere between 44% and 79%.

Left said if Root shares were trading at the same valuation as Lemonade, the stock would be priced at around $65.

“This is a disruptive tech company and investors have an opportunity to buy the stock at bargain prices vs. what the smartest tech investors in the world paid just five months ago,” Left said.

Benzinga’s Take: Given the size of the global insurance market and the major problems the industry has with speed, transparency and costs, top insurtech stocks could have massive potential long-term growth runways. However, the industry is very young, so there is still plenty of risk involved in picking winners and losers at this point.

See also: Insurtech Companies Disrupting the Insurance Industry