We came across a bullish thesis on Metromile (MILE) on ValueInvestorsClub by hardenstepback. VIC is our preferred site because the ideas there are generally posted by aspiring analysts who tend to think out of the box. We find the ideas presented on the site well thought out and worthy of a serious consideration. Click here for the full article. Below we summarized the MILE bullish thesis. Metromile shares were trading at $15 when this thesis was published, vs. today’s price of less than $9.
Metormile (MILE) is a San Francisco-headquartered insurtech start-up company that offers a unique pay-per-mile auto insurance, licenses a digital insurance platform to insurance companies globally, and provides a digitally native offering featuring smart driving features, automated claims, and vehicle information.
Auto insurance industry has a practice of determining the premium charges based on buyer’s age, numbers of years behind the wheel, vehicle cost, claim history etc. Based on these factors, most large players tend to rely on the less vulnerable drivers’ business (65%), and are hence able to subsidize for the more aggressive drivers (35%). MILE adds factors such as the driving speed, frequency of the roads used, etc. to the above criteria, and creates a significantly better prediction of accident rates.
MILE offers a smart way to obtain low-cost auto insurance wherein premiums are calculated based on actual miles driven. This supports a broad range of drivers, especially the low-mileage drivers such as old folks, who also tend to safe drivers. The latter category can easily prove their low-mileage claim with GPS data. This helps safe drivers avoid subsidizing risky drivers. The clever risk pricing technique is a win-win formula – both for the company as well as customers.
In a general environment of poor customer satisfaction in the industry, MILE brings a unique and seamless solution to the problem of claim-filing by offering an automated claim-filing platform. The company’s “Metromile Enterprise” arm help it license its claims experience automation software to other industry players. The segment has increased its annual revenue from about $1 million in 2019 to what the analyst expects in 2020 reaching $5.6 million. Metromile Enterprise is a high-margin complimentary business to MILE’s core auto insurance business.
In light of very promising growth prospects, a merger with SPAC slated to close in early 2021, and potential to grow geographically in other states, the analyst thinks MILE could be a takeover target with a possible price target of $34 in 5 years, clocking an IRR of 18% from the low teens it is presently trading at.