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What happened
The stock market was having a good day on Monday, fueled by news that President Donald Trump signed the Coronavirus Relief Bill. However, the insurance technology stock lemonade (NYSE: LMND) was moving in the opposite direction. As of 11:20 a.m. EST, stocks had fallen nearly 10% on the day.
So what
Today’s downward movement could be fueled by the upcoming expiration of the insider-held stock lock-up.
Image source: Getty Images.
When companies go public through the traditional route of IPOs, they usually have a period of time that must pass before insiders can sell their shares on the public market. This is designed, among other reasons, to prevent too much stock from flooding the market immediately after the IPO.
In the case of Lemonade, this is the second major expiration of the block (there was another one in November), but this is by far the larger of the two. About 44 million shares become eligible for trading on Tuesday, which is more than three-quarters of all exceptional actions of the company. And most of the shares eligible for trading are owned by company insiders.
It remains to be seen whether any insiders actually decide to cash out, and if so, to what extent. But there’s a chance some will, creating selling pressure on the title.
Now what
First of all, it’s important to mention that even after today’s move, Lemonade is still one of the most successful IPOs of 2020. The stock is priced at $ 29 per share, which means the current price of $ 112 is almost 300% higher than the IPO price. In the past two months alone, Lemonade has more than doubled, fueled by news of its intention to expand into France and its intention to test a life insurance product in the near future.
Second and most importantly, from a long-term investor’s perspective, events such as lock-in expirations are not important to the thesis. It’s just a short-term event that could definitely create selling pressure, but it won’t matter to the long-term success or failure of the business. So if you believe in Lemonade’s long-term market opportunity, a dip like this could be a great buying opportunity.
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