I Predicted Lemonade's Big Move in 2025. Here's 1 Stock I Think Will Soar in 2026.

Lemonade delivered strong operational progress in 2025 with in-force premium growth of 30% year-over-year, a trailing-12-month gross loss ratio that fell from 77% to 67%, gross profit more than doubling year-over-year, and positive adjusted free cash flow, driving a ~95% stock gain. The author is bullish on Klarna for 2026 despite the stock trading ~25% below its mid-2025 IPO level, citing U.S. customer growth of >30% annually, 4 million Klarna Card signups in months, and U.S. revenue up 51% year-over-year, plus strategic moves (Apple Pay financing, Coinbase stablecoin partnership, and a proprietary crypto wallet) that expand its addressable payments market beyond BNPL.

Analysis

Market structure: Rapid improvement at Lemonade (LMND) — in-force premium +30% YoY and gross loss ratio falling to 67% — reallocates margin to insurers that can scale technology and underwriting. Klarna (KLAR) attacking the card rails (targeting ~2/3 of card volume) with 30%+ customer growth and 51% US revenue growth suggests accelerating share gains from legacy processors and card issuers, pressuring incumbents' fee mix over 12–36 months.

Risk assessment: Key tails are regulatory clampdowns on BNPL/crypto funding (US/EU rulemaking in next 6–18 months), a consumer credit shock raising charge-offs 200–400bps above current expectations, or a stablecoin funding disruption from partners like COIN. Short-term (days–weeks) volatility will hinge on earnings and Apple Pay / Coinbase integration announcements; medium-term (3–12 months) sensitivity is to funding costs and credit losses; long-term (2–5 years) outcomes depend on durable unit economics and regulatory regime.

Trade implications: Favor high-conviction, event-driven exposure to KLAR around product rollouts and Apple Pay expansion while hedging consumer-credit risk; monetize LMND momentum with covered calls or trims to lock gains while keeping a small core for upside if loss ratios improve further. Cross-asset: stronger fintech/BNPL adoption is risk-on — expect higher equity beta, steeper corporate credit spreads for consumer lenders, and elevated implied vols in fintech names.

Contrarian angles: Consensus overlooks funding fragility in KLAR’s stablecoin experiments and potential interchange pushback by card networks; KLAR may be underpriced for share-gain optionality but overexposed to funding/legal risk. LMND’s improvement may be underappreciated operationally (cohort improvement), so a measured long with volatility-selling is preferable to unhedged momentum chasing.

Key Decisions for Investors

• Establish a 3% long position in KLAR (NYSE: KLAR) as a growth/capture trade, with a 12–24 month horizon; set an initial profit target of +60% and a hard stop-loss at -25% from entry. Rationale: 30%+ user growth and 51% US revenue growth imply >30% CAGR if execution continues; catalysts include Apple Pay rollouts and Coinbase funding integrations over next 6–12 months.
• Implement a pair trade: long KLAR 3% vs short Mastercard (MA) 2% to express share migration from legacy card rails to Klarna-branded products. Rebalance if spread moves >25% or ahead of KLAR earnings; expected hedge reduces macro beta while capturing payments share shift over 12–36 months.
• Reduce directional exposure to LMND by selling 25–50% of any material ( >2% portfolio) long positions and replace with covered calls: sell 1–3 month calls 10–15% OTM (roll monthly). If holding LMND, buy 3-month puts 8–12% OTM as downside protection until next quarterly loss-ratio print.
• Use options to express KLAR upside with asymmetric risk: buy 9–15 month call spreads (long ATM call, short +20% OTM call) sized to 1–2% notional for directional exposure; this limits premium decay and benefits near-term product catalysts. Monitor EU/US BNPL regulatory notices and KLAR quarterly net charge-off trends (watch >+200bps move) within next 90–180 days — if observed, trim longs by 50%.