Data science-powered auto insurance company Metromile, Inc. (MILE - Get Rating) provides pay-per-mile car insurance services in the United States and internationally. The shares of the San Francisco-based concern have declined 80.7% in price over the past year and 84.2% year-to-date to close their last trading session at $2.46. The stock is currently trading below its 50-day and 200-day moving averages, and just slightly above its 52-week low of $2.09, which it hit on December 6.

In November, artificial intelligence (AI) powered insurance company Lemonade, Inc. (LMND) and MILE agreed to LMND’s acquisition of MILE in an all-stock transaction that implies a fully diluted approximate equity value of $500 million, or just over $200 million net of cash. According to the agreement, MILE shareholders will receive LMND common shares at a ratio of 19:1. The deal is expected to close during the second quarter of 2022. “Joining forces with Lemonade Car will create the most customer-centric, fair, and affordable car insurance, and is a great outcome for Metromile shareholders, who will benefit as shareholders of the combined company,” said Dan Preston, CEO of MILE. However, MILE shares have slumped 20.1% in price over the past month.

Following the acquisition news, several law firms, including Halper Sadeh LLP, a global investor rights law firm, WeissLaw LLP, Bragar Eagel & Squire, P.C., a nationally recognized stockholder rights law firm, have initiated investigations of MILE regarding potential violations of the federal securities laws and breaches of fiduciary duties by the company’s board of directors relating to the proposed acquisition of the company by LMND.

Here is what could shape MILE’s performance in the near term:

Poor Profitability

MILE’s EBITDA and net income margins of negative 180.44% and 296.61%, respectively, are substantially lower than the 23.54% and 30.08% industry averages. Furthermore,  MILE’s negative 76.89% and 69.04% respective ROA and ROTC compare with the 1.36% and 6.24%  industry averages.

Top Line Growth Does Not Translate into Bottom-Line Improvement

MILE’s total revenues increased 277.3% year-over-year to $30.00 million in its  fiscal third quarter, ended September 30. However, its loss from operations stood at $37.66 million, up 308.9% from the same period last year, while its net loss grew 151.7% from its year-ago value to $26.76 million. The company’s net loss per share was $0.21, versus a $0.15 consensus estimate, reflecting a 40%  earnings surprise.

The company’s Accident Quarter Loss Ratio was 81.6%, compared to 56.7% in the prior-year period. The increase was attributed to the increased severity of claims observed industry-wide and claims related to Hurricane Ida. Its Accident Quarter Loss Adjustment Expense Ratio also increased to 17.3%, compared to its 8.8% year-ago value. “Loss ratios remained elevated given industry-wide inflation in costs across bodily injury and physical damage,” said Dan Preston, Chief Executive Officer of MILE.

POWR Ratings Reflect This Bleak Prospects

MILE has an overall D rating, which translates to Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a D grade for Quality, which is consistent with its lower-than-industry profit margins.

MILE has an F grade for Stability. Its 1.82 beta justifies this grade.

Of the 10 stocks in the D-rated Insurance – Accident & Supplemental industry, MILE is ranked the last.

Beyond what I have stated above, one  can also view MILE’s grades for Sentiment, Growth, Momentum, and Value here.

View the top-rated stocks in the Insurance – Accident & Supplemental industry here.

Bottom Line

MILE expects its recently announced plan to be acquired to be highly beneficial for the company and expects to be better positioned to serve its customers. However, currently, the company’s weak bottom line and negative profit margins are a concern. And  analysts expect the company’s EPS to remain negative at least until its next fiscal year. Thus, considering the company’s bleak prospects, we think the stock is best avoided now.

How Does Metromile, Inc. (MILE) Stack Up Against its Peers?

While MILE has an overall POWR Rating of D, one might want to consider investing in the following Insurance – Accident & Supplemental stocks with a B (Buy) rating: Triple-S Management Corporation (GTS - Get Rating) and Assurant, Inc. (AIZ - Get Rating).

MILE shares were trading at $2.41 per share on Wednesday morning, down $0.05 (-2.03%). Year-to-date, MILE has declined -84.50%, versus a 26.28% rise in the benchmark S&P 500 index during the same period.

About the Author: Subhasree Kar

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics. More...

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