Shares of ROOT ROOT have rallied 627% year to date, zooming past the industry’s increase of 28.6%, the Finance sector’s rise of 22.3% and the Zacks S&P 500 composite’s gain of 28.6% in the same time frame.
Being the largest auto insurtech in the United States and delivering one of the best loss ratios in the industry, ROOT is poised to gain from opportunities offered by more than $300 billion market in which it operates.
This company has a market capitalization of $1.2 billion. The average volume of shares traded in the last three months was 0.7 million.
ROOT Outperforms Industry, Sector & S&P YTD
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ROOT Trading Above 50-Day Moving Average
ROOT shares are trading well above the 50-day moving average, indicating a bullish trend.
ROOT Price Movement vs. 50-Day Moving Average
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Mixed Analyst Sentiment for ROOT
The Zacks Consensus Estimate for 2024 loss per share has narrowed to $1.21 from a loss per share of $2.13 expected 60 days ago. However, the same for 2025 has widened to a loss of $1.77 per share from a loss of $1.16 per share expected 60 days back.
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The consensus estimate for 2024 implies an 88.2% year-over-year increase, while the same for 2025 suggests a 46.7% decrease. The company has a Growth Score of A.
ROOT’s Growth Path
The insurer expects to add new partners, accelerate growth, expand geographically and deliver even better products at better prices to customers going forward.
ROOT achieved profitability for the first time in the last reported quarter. The insurer now wants to invest its profits in growth engines — both the direct and partnerships channel. This is in tandem with the industry’s shift from agents to direct channel driven by the increased usage of Internet. The company thus identified diversified distribution is a key component to its continued success.
ROOT’s proprietary tech platform and data science algorithms should continue to drive growth. Its loss ratio should continue to improve, leveraging machine learning technology to better price and underwrite insurance. Its technology offers a competitive advantage.
ROOT has a solid reinsurance program in place that shields its balance sheet from erosion. It has strengthened its balance sheet by improving its cash balance while lowering debt. With debt refinancing and reduction, the insurer lowered its interest expenses by 50% that in turn improved its earnings.
ROOT’s Return on Capital
Return on equity in the trailing 12 months was -9.8%, lower than the industry average of 7.6%. ROOT’s poor return on equity, a profitability measure, reflects the company's inefficiency in utilizing its shareholders’ fund.
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Its return on invested capital (ROIC) has been improving for quite some time. However, ROIC in the trailing 12 months was 4.5%, still lower than the industry average of 5.8%.
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ROOT Shares Are Expensive
The stock is overvalued compared to its industry. It is currently trading at a price-to-book multiple of 6.33, higher than the industry average of 1.56.
Its Value Score of D indicates its expensive valuation.
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Shares of other insurers like EverQuote Inc EVER, The Allstate Corporation ALL and The Travelers Companies TRV are also trading at a multiple higher than the industry average.
Conclusion
ROOT envisions to be the largest and most profitable personal lines insurance provider in the United States. Continued investment in data science and technology should drive operational outperformance for the insurer.
Though ROIC is still negative, continuous improvement instills confidence in the insurer's efficiency in utilizing funds to generate income.
Despite its expensive valuation, given its focus on driving growth, its price appreciation and its VGM Score of B, the time appears right for potential investors to bet on this Zacks Rank #1 (Strong Buy) stock. You can see the complete list of today’s Zacks #1 Rank stocks here.
Research Chief Names "Single Best Pick to Double"
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This company targets millennial and Gen Z audiences, generating nearly $1 billion in revenue last quarter alone. A recent pullback makes now an ideal time to jump aboard. Of course, all our elite picks aren’t winners but this one could far surpass earlier Zacks’ Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months.
Free: See Our Top Stock And 4 Runners UpThe Travelers Companies, Inc. (TRV) : Free Stock Analysis Report
The Allstate Corporation (ALL) : Free Stock Analysis Report
EverQuote, Inc. (EVER) : Free Stock Analysis Report
Root, Inc. (ROOT) : Free Stock Analysis Report
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