$LMND train is taking off. The market finally saw the investment...
Oguz Erkan@oguzerkan
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Jul 03, 2025
~3 min read
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$LMND train is taking off.
The market finally saw the investment case — declining loss ratio, cheaper prices, and accelerating growth.
Here is my $LMND investment thesis: 🧵
The market finally saw the investment case — declining loss ratio, cheaper prices, and accelerating growth.
Here is my $LMND investment thesis: 🧵
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1/ $LMND is revolutionizing the property & casualty (P&C) insurance in the US.
Their direct-to-consumer approach and AI-centric tech stack allow them to offer cheaper prices.
How? They pass efficiencies to the customers.
Here, listen to it from the $LMND CEO himself:
Their direct-to-consumer approach and AI-centric tech stack allow them to offer cheaper prices.
How? They pass efficiencies to the customers.
Here, listen to it from the $LMND CEO himself:
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2/ Its business model is genius.
It created the Lemonade app and centered all operations around it.
Instead of working with agents, it does direct marketing and uses the Lemonade app to onboard clients and process claims.
It created the Lemonade app and centered all operations around it.
Instead of working with agents, it does direct marketing and uses the Lemonade app to onboard clients and process claims.
1:42
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3/ It uses AI agents in operations.
Currently, 98% of all onboarding and 55% of all claim processing is handled by its native AI agents without any human interaction.
This allows it to scale without growing headcount.
This means increasing efficiency and operational leverage.
Currently, 98% of all onboarding and 55% of all claim processing is handled by its native AI agents without any human interaction.
This allows it to scale without growing headcount.
This means increasing efficiency and operational leverage.
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4/ AI-centric design also cuts costs.
Most of the expenses in insurance stem from loss-adjustment.
This is because humans used to be heavily involved in this.
Now that $LMND handles this through AI, its loss ratio also declines.
Most of the expenses in insurance stem from loss-adjustment.
This is because humans used to be heavily involved in this.
Now that $LMND handles this through AI, its loss ratio also declines.
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5/ Lower costs result in lower prices.
It passes some of these cost savings to customers in terms of lower prices.
As of today, its prices are, on average, 68% lower than those of the competitors.
It passes some of these cost savings to customers in terms of lower prices.
As of today, its prices are, on average, 68% lower than those of the competitors.
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6/ This creates a positive feedback cycle.
- Operating leverage reduces costs.
- Reduced costs increase efficiency.
- This allows $LMND to charge lower prices.
- Lower prices attract more customers.
- Bigger scale again boosts operating leverage.
Result? A flywheel of growth.
- Operating leverage reduces costs.
- Reduced costs increase efficiency.
- This allows $LMND to charge lower prices.
- Lower prices attract more customers.
- Bigger scale again boosts operating leverage.
Result? A flywheel of growth.
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7/ Result? The business is exploding.
It grew revenues by 48% annually in the last 5 years.
What's even better is that after 20% growth last year, it grew 27% in the first quarter of this year.
Growth is accelerating.
It's just the beginning. Here is why:
It grew revenues by 48% annually in the last 5 years.
What's even better is that after 20% growth last year, it grew 27% in the first quarter of this year.
Growth is accelerating.
It's just the beginning. Here is why:
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8/ They'll roll out the car insurance this year.
Car insurance is one of the largest markets, yet it's easy to enter due to lower policy sizes.
Management expects the car will contribute $4 billion to in-force premiums in the next decade.
This is massive for it.
Car insurance is one of the largest markets, yet it's easy to enter due to lower policy sizes.
Management expects the car will contribute $4 billion to in-force premiums in the next decade.
This is massive for it.
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9/ Their balance sheet is also strong.
It has $545 million in equity against a total debt of $123 million.
This position becomes even stronger when you consider that it's cash flow positive.
It can weather any financial storm and keep thriving.
It has $545 million in equity against a total debt of $123 million.
This position becomes even stronger when you consider that it's cash flow positive.
It can weather any financial storm and keep thriving.
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10/ Valuation is fair.
Assuming:
- 18% annualized growth for the next 10 years
- 15% final operating margin
- 7% final cost of capital
- 3.5% terminal growth
- 15% terminal ROIC
We get a per-share fair value of $39.96.
This means that the business is fairly valued.
In any scenario better than this, there will be a significant upside.
Given that P&C insurance will be a $2 trillion market in 10 years, I think it can grow low double digits for a very long time.
In this case, the current price would seem minuscule, and the opportunity would be great.
Assuming:
- 18% annualized growth for the next 10 years
- 15% final operating margin
- 7% final cost of capital
- 3.5% terminal growth
- 15% terminal ROIC
We get a per-share fair value of $39.96.
This means that the business is fairly valued.
In any scenario better than this, there will be a significant upside.
Given that P&C insurance will be a $2 trillion market in 10 years, I think it can grow low double digits for a very long time.
In this case, the current price would seem minuscule, and the opportunity would be great.
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You want to learn more about $LMND?
I recently wrote a deep dive on it.
Read it on my newsletter, it's free 👇
capitalist-letters.com/p/tariff-proof…
I recently wrote a deep dive on it.
Read it on my newsletter, it's free 👇
capitalist-letters.com/p/tariff-proof…