THE WATCHLIST

This is the 6th Watchlist Investor Report: two “Happy Stocks” picks every month, with full breakdowns; business model, key metrics, future outlook, etc.

No fluff, but enough to help you understand and dive in so you can make informed decisions.

This isn’t a new playbook. I’ve used the same core strategy for nearly 15 years. Some of you remember the 2021 Watchlist. I’m still holding some of those names above.

Two things set The Watchlist apart: (1) real winners and (2) no fees.

This isn’t a stock-picking service. I don’t buy everything on the Watchlist. I pass on most of them because I only buy the ones I have the highest conviction in, and I keep my growth portfolio to around 25-30 positions max.

With that said, you’ll see that Happy Stocks still outperforms paid stock-picking services.

I hope this helps how you invest in the future. 

On that note, here’s a look at some of my actual top holdings...

Who is Lemonade (Ticker LMND)?

Lemonade (LMND) is a digital-first insurance company that uses AI and automation to sell renters, homeowners, pet, car, and life insurance.
They’re known for offering fast, app-based insurance, simple policies, instant approvals, and quick claim payouts — often without human involvement.

What does Lemonade do?

LMND provides fully online insurance coverage across multiple categories:

• Renters insurance

• Homeowners insurance

• Pet insurance

• Car insurance (with telematics)

• Life insurance (term life)

Everything, including buying a policy, managing it, filing a claim, is done through their app.

They position themselves as a tech-driven alternative to traditional insurers, using AI models for pricing, underwriting, and claim handling.

💰️ How Lemonade Makes Money?

LMND earns money through the premiums customers pay for their insurance policies and a few additional streams.

Revenue Streams

1. Premiums Earned (majority of revenue)

This is the main source. LMND collects premiums from customers, keeps a portion, and passes the rest through its reinsurance structure.

Approx share of revenue: 90–95%

2. Investment Income

LMND invests customer premiums in bonds and interest-earning securities until claims are paid. This produces a growing revenue source as interest rates rise and assets increase.

Approx share: 3–6%

3. Fees & Other Revenue

Small line items such as:

• Policy fees

• Installment fees

• Service fees from managing policies

Approx share: 1–3%

Does LMND have a Wide Durable Moat?

LMND is building a moat based on technology, brand, user experience, and cross-selling, but it hasn’t reached the scale or data dominance necessary for a wide moat.

They could eventually build a wider moat if they:

-Achieve massive scale
-Drive loss ratios consistently lower
-Build the best AI underwriting systems
-Become the default insurer for younger generations

Right now, their moat is real but not yet wide.

Why the moat is not wide…

1. Insurance is a commodity market
2. LMND lacks scale
3. Data advantage isn’t mature yet

Is this Lemonade’s Secret Weapon?

LMND isn’t just selling insurance.  They’re accumulating the most valuable future customer cohort in the industry.

This is the kind of long-term tailwind the market doesn’t price in, but it can reshape the company’s economics over the next decade.

Most people look at LMND’s current customers and see low-value renters paying $5 to $15 per month.

But here’s what you could be missing…

LMND is building a 20 to 30-year customer pipeline before those customers even reach their prime earning years.

I don’t believe any other insurer has done this at scale.

Why this Matters?

1. Insurance value grows as people age

The same renter paying $10/month today will eventually need:

• Homeowners insurance

• Car insurance

• Pet insurance

• Life insurance

• Possibly umbrella policies

2. LMND is acquiring tomorrow’s high-value customers at today’s low CAC (customer acquisition cost)

Legacy insurers often spend $300–$900 per customer in acquisition costs.
LMND acquires renters for a fraction of that, then upgrades them over the years.

3. They’re capturing customers before they get married, buy homes, start families, get pets, and grow wealth

By the time competitors want that person, LMND already has:

• Their history

• Their behavior data

• Their trust

• Their billing relationships

• Their claims patterns

4. Insurance has near-zero switching once life gets “sticky”

People rarely change insurers once they have:

• a house

• two cars

• kids

• life insurance

• bundled policies

If LMND gets them early, they may keep them for decades.

5. This is essentially a long-duration LTV (lifetime value) machine

LMND’s earliest customers from 2016–2018 are already converting to higher-premium products.

The real LTV explosion could probably happen in the next 10 years when those customers hit peak life milestones. 

Core Analysis

Market Opportunity

LMND targets the massive personal insurance market; renters, homeowners, auto, pet, and life. These segments represent hundreds of billions in annual premiums, with U.S. auto alone at $250B and homeowners/renters over $100B.  As a digital-native insurer, LMND is positioned to capture share from younger, mobile-first consumers. Their growth potential is tied to the shift toward digital channels and continued product and geographic expansion.

Market Position

LMND is still small, about $1B in In-Force Premium as of 2024, compared to companies like Allstate or Progressive. But it’s growing fast. Its AI-driven experience, social impact model, and appeal to younger customers have built a strong brand. With a multi-product portfolio, European expansion, and a focus on tech-driven underwriting, LMND is positioning for long-term competitiveness, even as it prioritizes growth and loss ratio improvement over short-term profits.

Revenue Growth

LMND has shown strong revenue growth driven by a larger customer base and higher premiums per customer. Newer products like car insurance are contributing to continued momentum. Overall, LMND is scaling quickly from a relatively small starting point.

2022: $256.7 million (approx. +100% YoY growth vs. 2021)
2023: $429.8 million (+67% YoY)
2024: $526.5 million (+23% YoY)
2025 TTM: $658.6 million (+25% vs. FY 2024)

EPS Growth

LMND is still unprofitable, but its EPS losses have been shrinking since 2023. This improvement reflects stronger revenue and better margins. Good progress, but the company hasn’t yet reached breakeven.

2022: –$4.59 EPS (GAAP net loss per share, a larger loss than the –$3.94 in 2021)
2023: –$3.40 EPS (loss per share improved by 26% YoY)
2024: –$2.80 EPS (net loss per share narrowed further, roughly 18% better than 2023)
2025 TTM: –$2.92 EPS (trailing-twelve-month loss per share shows continued gradual improvement)

Cash Flow/FCF Margins

LMND’s cash flow has improved significantly, moving from deep negative free cash flow in 2022 to near breakeven in 2024. By 2025, it began generating slightly positive free cash flow on a trailing basis. This signals the business is approaching self-sufficiency and may no longer need regular outside funding to grow.

• 2022: Free Cash Flow –$173.1 million

• 2023: Free Cash Flow –$128.3 million

• 2024: Free Cash Flow –$20.8 million
  Note: Adjusted FCF was +$47.6M (9% margin) in 2024 when including net $68M financing proceeds

• 2025 TTM: Free Cash Flow Positive: $5 million (roughly +1% FCF margin, indicating breakeven cash flow over the last 12 months)

Gross & Profit Margins

LMND’s gross margin has improved significantly as underwriting performance and scale have kicked in, driven by better pricing and lower loss ratios.

Net profit margin is still negative but trending upward, showing meaningful progress toward profitability.

2022: Gross Margin 16%; Net Profit Margin –116% (net loss was larger than revenue)
2023: Gross Margin 19–20%; Net Profit Margin –55%
2024: Gross Margin 32%; Net Profit Margin –38%
2025 TTM: Gross Margin 35–36% est; Net Profit Margin –26% (losses as a percentage of revenue have shrunk further)

Pricing Power

LMND has limited short-term pricing power due to regulation and strong competition, but steadily increasing premiums per customer through cross-sells, upsells, and selective rate hikes. Over time, its tech-driven pricing precision could turn into a real advantage.

2022: Premium per Customer: $346 (30% jump from 2021 due to cross-selling and higher coverage)
2023: Premium per Customer: $369 (+7% YoY increase)
2024: Premium per Customer: $388 (+5% YoY, reflecting modest rate increases and more multi-product customers)
2025 TTM: Premium per Customer: $402 (+4% vs 2024, continuing a gradual rise in revenue per customer)

Balance Sheet: Cash & Debt

LMND maintains a strong balance sheet with ample cash and minimal debt, which is critical for an insurance company that needs capital for regulatory requirements and to cover claims.

Cash on Hand: As of the end of 2024, LMND had roughly $1.02 billion in cash, cash equivalents, and invested assets. This includes about $386 million in cash & cash equivalents and around $635 million in investments (mostly bonds and other fixed-income securities). This cash position provides a nice runway to fund operations.

Long-Term Debt: $0 long-term debt. LMND currently has no significant long-term debt on its balance sheet.

Institutional Ownership:

A majority of LMND’s shares are held by institutional investors, signaling confidence from large funds and stakeholders in the company’s prospects. LMND’s investor list includes well-known names such as SoftBank (which was a major early investor), as well as index funds and asset managers like Vanguard and BlackRock.

Approximately 57%–60% of LMND’s outstanding shares are owned by institutional investors.

Why LMND Looks Good 📈📈📈

1. LMND is built for the next generation of insurance buyers
2. They’re building a fully automated, AI-first insurance model
3. The multi-product strategy creates a long-term customer flywheel
4. LMND’s brand is unlike anything else in insurance
5. The total addressable market is enormous

Why LMND Can Be Concerning 📉📉📉

1. The path to profitability is still unproven
2. Insurance is brutally competitive and price-driven
3. Loss ratios have historically been volatile
4. Their reinsurance dependency limits upside
5. The company still lacks meaningful scale

Scenario Analysis

Bull Case: LMND successfully scales its AI-driven insurance model, bringing loss ratios down into industry-competitive territory while premium per customer keeps rising through cross-selling of home, pet, auto, and life. As automation reduces operating costs and reinsurance reliance declines, the company reaches sustained profitability and starts compounding retained earnings. Customer growth accelerates globally, especially in Europe, and LMND becomes the default digital insurer for younger generations. In this scenario, LMND matures into a high-margin, multi-line insurer with a durable technology moat and a dramatically higher valuation.

Base Case: LMND continues steady growth in premiums and customers, with gradual improvements in loss ratios and operating leverage. Profitability remains within reach but inconsistent, as the company balances expansion with reinsurance and regulatory constraints. AI automation lowers costs, but not fast enough to create a major advantage over traditional insurers. LMND becomes a respectable mid-tier Insurtech with solid brand recognition, stable revenue growth, and moderate valuation upside, but not a category-defining winner.

Bear Case: Loss ratios remain volatile, customer acquisition costs rise, and pricing pressure from larger insurers limits LMND’s ability to scale profitably. Heavy reliance on reinsurance keeps margins thin, and international expansion stalls. Cash burn re-accelerates, forcing the company to raise capital at unfavorable terms, diluting shareholders. In this scenario, LMND remains a niche digital insurer with limited competitive advantage, and long-term profitability becomes uncertain.

Zoom Out: 5-10 Year Outlook

5-Year Outlook (2025–2030)

LMND is likely to become a stronger mid-tier digital insurer with a larger customer base, better loss ratios, and more meaningful revenue from home, auto, and pet insurance. Cross-selling improves unit economics, automation lowers costs, and profitability becomes realistically achievable toward the end of this period. LMND grows, but still operates far below the scale of major incumbents.

10-Year Outlook (2025–2035)

If the model works, LMND will evolve into a globally recognized digital-first insurer with deeper customer relationships and more accurate AI underwriting. Higher-value policies (home & auto) will dominate the mix, margins expand, and LMND becomes a durable, tech-driven insurer with a real moat. In a conservative case, it remains a niche brand with steady but modest growth.

Key Risks

Loss ratios stay volatile, reinsurance caps profitability, incumbents replicate LMND’s tech, customer acquisition costs rise, or auto scaling fails.

Bottom Line

LMND has long-term potential, but the next few years must prove it can scale profitably. If execution improves, LMND could look meaningfully bigger and more efficient a decade from now; if not, it risks remaining small and niche.