Why I sold Lemonade [LMND]

Yes, I sold my Lemonade stock. Don’t get me wrong. The company’s fundamentals are still good, the business model is still great but I still sold it.


Stock Valuation

This company had an insane Price-to-Sales of 93. Absurdly high. I understand that the market is currently filled with companies with insane valuations but I don’t see how that P/S ratio is higher than Tesla’s P/S ratio of 25. I still feel that Lemonade has a very good business model but I only invest in high growth stocks, and I don’t see how Lemonade is a 10x stock from here. The stock price is just too high now and it makes me uncomfortable holding it.

Insider Selling

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. That’s a lot of shares sold. This is a RED FLAG for me. Why would the CEO sell away his shares if he feels that his shares will go higher in the future? The CEO of Lemonade is a great speaker and I don’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. But if you were to think about it, insiders selling because they know insider news that affects the stock price can be illegal. So using algorithmic selling, can be a safe and legal method to sell 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.

SEC Filing from https://www.secform4.com/insider-trading/1691421.htm

My Exit

Day Chart from https://www.tradingview.com/

The reason of selling Lemonade now was to free up cash to move into other companies with higher potential growth. Also, I saw that the stock price rallied quite significantly on 11 January and was followed by a correction after. At that point of time, I was not decided yet on selling Lemonade stock so I missed opportunity to exit during the rally up. 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.

Lemonade Exit from https://www.saxotrader.com/

I bought the stock by DCA-ing with an average cost per share of $72.92. Sold out at $177 with 142% gain. I’m happy with the profits from my overall position of Lemonade. No doubt that the stock can go up higher, but I’d rather put my cash into something else.