Yes, I sold my Lemonade [LMND] stock. Now, don’t get me wrong. Lemonade’s company fundamentals and business model are still great. However, the company no longer aligns with my investment goals.
Stock Valuation of Lemonade [LMND]
This company had an insane Price-to-Sales ratio of 93 which is absurdly high. I know… There are tons of companies in the market that have insane valuations recently. But Lemonade’s P/S ratio should not be higher than Tesla’s of 25! Although Lemonade still has a very good business model, I only want to keep stocks that have good growth potential in my high growth portfolio. I just don’t see how Lemonade can be a 10x stock from here now. The stock price is just too high right now and it makes me uncomfortable holding it.
There has been a lot of insider selling recently. The CEO, Daniel Schreiber, sold a lot of his shares in the past few months. On 12 November 2020, he owned roughly 808k shares. On 19 January 2021, he owned 50k shares. He sold a lot of shares! This is a RED FLAG for me. Why would the CEO sell away his shares if he felt the stock price could go higher in the future?
The CEO of Lemonade is a great speaker. Hence, I didn’t expect anything less from him during an interview when he explained the selling of the shares. He mentioned that it was all automated algorithmic selling and not concentrated selling. He tells investors not to worry as he is still long on Lemonade.
It is illegal for insiders to sell their shares if they know insider news that can affect the stock price. “Algorithmic selling” can be a safe and legal method to sell their shares consistently over a few months. This is just my opinion. Here’s the SEC Filing, you can take a look and form your own opinion.
My Exit from Lemonade [LMND]
The reason for selling Lemonade now was to free up cash to move into other companies with higher potential growth. On 11 January, the stock price rallied a lot. I could have sold before the correction that followed soon after the rally. A missed opportunity to exit there during that rally but only because I haven’t decided to sell Lemonade yet. Therefore, I was not going to miss another. On 27 January, the stock opened strong and peaked at 183. I took that opportunity to exit since I didn’t think that the price could sustain for long.
I bought the stock after the IPO dip by DCA-ing with an average cost per share of $72.92 and sold out at $177 with 142 % gain. To sum up, I’m happy with the profit gain from Lemonade. Although the stock can go up higher, I’d prefer to put my cash into something else.