California-based technology startup Metromile, Inc. (MILE) offers pay-per-mile car insurance services and licenses a digital insurance platform in the United States and internationally. MILE’s stock declined 32% over the past month and 48.5% over the past three months. This can be primarily attributable to the pandemic-related challenges and several other business headwinds.

Although MILE has been making decent progress in enhancing its direct-to-consumer channels and state expansion to acquire new customers, the reduced demand for its pay-per-mile auto insurance and higher cancellation rates could hamper its near-term growth. The stock is currently trading 76.4% below its 52-week high of $4.81, which it hit on February 17.

The company lowered its previous guidance for the full year 2021. The bleak outlook and declining financials could lead to its stock witnessing further pullback in the upcoming months.

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

Short-term Business Challenges

In the last reported quarter, MILE faced higher-than-expected cancellations due to the expiry of government-mandated COVID-19 payment extensions. As a result, its Policies in Force stood at 95,314 as of June 30, 2021, compared to 95,958 at the end of the first quarter of 2021. Also, factors, including high-mileage driving, vehicle sales, and out-of-state moves, affected the company’s business. In addition, unexpected regulatory delays impacted the company’s timely approvals of pricing changes that could help drive its additional Policies in Force. Furthermore, MILE expects the trends of reduced demand for pay-per-mile and pandemic-related cancellation rates to persist in the near term. This could negatively affect its net Policies in Force growth and channel performance.

Inadequate Financials

Although MILE’s revenue from net premiums earned rose 546% year-over-year to $18.05 million, for the second quarter ended June 30, 2021, its Accident Quarter Loss Ratio stood at 74.2%, compared to 49.8% in the prior-year period. Moreover, the company reported an Accident Quarter Contribution Loss of $0.9 million for the quarter versus an Accident Quarter Contribution Profit of $6.5 million in the second quarter of 2020. Its total costs and expenses grew 405.9% year-over-year to $76.18 million, while loss from operations rose 554.9% from the year-ago value to $48.08 million.

The company’s trailing-12-month EBITDA margin, ROA, and ROTC came in at negative 198.3%, 66.2%, and 69.6%, respectively. Moreover, its trailing-12-month gross profit margin and cash from operations stood at negative 3% and $56.73 million, respectively.

Stretched Valuation

In terms of trailing-12-month EV/Sales, MILE is currently trading at 6.36x, 99.3% higher than the industry average of 3.19x. Likewise, its trailing-12-month Price/Book multiple of 2.59x is 116.3% higher than the industry average of 1.20x. Furthermore, the stock’s trailing-12-month Price/Sales ratio of 4.13 is 29.9% higher than the industry average of 3.18.

POWR Ratings Reflect Bleak Prospects

MILE has an overall rating of F, which translates to a Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight different categories. MILE has a D grade for Qualityprior-year and an F for Stability. The stock’s weak profitability and high volatility are reflected in these grades.

Also, it has a D grade for Value. This is consistent with the company’s higher than the industry valuation multiples.

In addition to the grades I’ve highlighted, one can check out additional MILE ratings for Sentiment, Momentum, and Growth here.

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

Bottom Line

MILE has been actively investing in new distribution and marketing channels, and branding and product enhancements to increase its customer retention rate. However, concerns related to higher cancellations rates, lower demand for its pay-per-mile policy, and higher contribution loss could limit its growth potential. Furthermore, its weak financials could cause its shares to retreat further in the coming months. Therefore, the stock is best avoided now.

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

While MILE has an F rating in our proprietary rating system, one might want to consider taking a look at its industry peers, Triple-S Management Corporation (GTS), and Assurant, Inc. (AIZ), which have a B (Buy) rating.

MILE shares were trading at $4.93 per share on Tuesday afternoon, up $0.12 (+2.49%). Year-to-date, MILE has declined -68.30%, versus a 21.75% rise in the benchmark S&P 500 index during the same period.

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.

More...