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ROOT Zooms Past S&P 500: Should You Buy Despite Premium Valuation?
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Shares of ROOT Inc. (ROOT - Free Report) have skyrocketed 145% year to date, outperforming the industry’s 13% growth, the Finance sector’s rise of 2.5% and the S&P 500 composite’s decline of 4.1%.
ROOT shares are trading near the high end of $181.14 of its 52-week range.
With a market capitalization of more than $2.7 billion, ROOT provides automobile and renters insurance products. It envisions being the largest and most profitable company in the industry.
ROOT Outperforms Industry, Sector & S&P 500 YTD
Image Source: Zacks Investment Research
ROOT Trades Above 50-Day Moving Average
ROOT shares are trading well above the 50-day moving average, indicating a bullish trend.
ROOT’s Price Movement Vs 50-Day Moving Average
Image Source: Zacks Investment Research
Average Target Price for ROOT Suggests Downside
Based on short-term price targets offered by five analysts, the Zacks average price target is $96.60 per share. The average suggests a 39.7% downside from the last closing price.
Image Source: Zacks Investment Research
What’s Working in Favor of ROOT?
The company’s growth strategy involves geographic expansion, increasing distribution channels and investing in opportunities that have the potential to generate high returns. It has been continually growing its policies in force.
Per Alex Timm, Root's co-founder and CEO, “Building differentiated access to customers remains a core pillar in our long-term growth strategy through our partnership channel.”
The insurer continues to expand across the automotive, financial services and agent sub-channels that, in turn, have been fueling growth in new writings at its Partnership channel. The Direct channel continues to benefit from prudent investments in customer acquisition.
Managing fixed expenses while prudently investing in marketing should drive margins. The insurer expects refinancing the debt facility with Blackrock in October 2024 to lower interest expenses by 50% in 2025. The net margin has been showing improvement over time.
The company has been effectively lowering its gross loss ratio, staying below the long-term target of 60-65%. This, in turn, has been helping it reduce rates in select states while maintaining desired returns.
ROOT Shares Seem Expensive
The stock is overvalued compared with its industry. It is currently trading at a price-to-book multiple of 13.17, higher than the industry average of 1.63.
Image Source: Zacks Investment Research
Other providers of automobile and renters insurance products like Lemonade (LMND - Free Report) and EverQuote (EVER - Free Report) are also trading at a premium to its industry.
ROOT’s Return on Capital
Return on equity (ROE) in the trailing 12 months was 16.3%, outperforming the industry average of 8.3%. ROE, a profitability measure, reflects how effectively a company is utilizing its shareholders. It is noteworthy that ROOT has been generating improved ROE.
Image Source: Zacks Investment Research
The same stays true for return on invested capital (ROIC), which has been improving over time. This reflects ROOT’s efficiency in utilizing funds to generate income. However, ROIC in the trailing 12 months was 10.6%, higher than the industry average of 6.4%.
Image Source: Zacks Investment Research
Analysts’ Optimism Raises Hope in ROOT
The consensus estimate for 2025 and 2026 moved 64.1% and 30% north in the last seven days, respectively, reflecting investor optimism.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for 2025 implies a 116.8% year-over-year plunge, while the same for 2025 suggests a 322.1% upsurge.
The insurer attained operational efficiency by ramping up investments in pricing and underwriting technology — a momentum ROOT intends to retain. Technological advantages have been playing a major role in the insurer’s growth. It has an active reinsurance policy in place that helps it absorb losses and maintain profitability.
Image: Bigstock
ROOT Zooms Past S&P 500: Should You Buy Despite Premium Valuation?
Shares of ROOT Inc. (ROOT - Free Report) have skyrocketed 145% year to date, outperforming the industry’s 13% growth, the Finance sector’s rise of 2.5% and the S&P 500 composite’s decline of 4.1%.
ROOT shares are trading near the high end of $181.14 of its 52-week range.
With a market capitalization of more than $2.7 billion, ROOT provides automobile and renters insurance products. It envisions being the largest and most profitable company in the industry.
ROOT Outperforms Industry, Sector & S&P 500 YTD
Image Source: Zacks Investment Research
ROOT Trades Above 50-Day Moving Average
ROOT shares are trading well above the 50-day moving average, indicating a bullish trend.
ROOT’s Price Movement Vs 50-Day Moving Average
Image Source: Zacks Investment Research
Average Target Price for ROOT Suggests Downside
Based on short-term price targets offered by five analysts, the Zacks average price target is $96.60 per share. The average suggests a 39.7% downside from the last closing price.
Image Source: Zacks Investment Research
What’s Working in Favor of ROOT?
The company’s growth strategy involves geographic expansion, increasing distribution channels and investing in opportunities that have the potential to generate high returns. It has been continually growing its policies in force.
Per Alex Timm, Root's co-founder and CEO, “Building differentiated access to customers remains a core pillar in our long-term growth strategy through our partnership channel.”
The insurer continues to expand across the automotive, financial services and agent sub-channels that, in turn, have been fueling growth in new writings at its Partnership channel. The Direct channel continues to benefit from prudent investments in customer acquisition.
Managing fixed expenses while prudently investing in marketing should drive margins.
The insurer expects refinancing the debt facility with Blackrock in October 2024 to lower interest expenses by 50% in 2025. The net margin has been showing improvement over time.
The company has been effectively lowering its gross loss ratio, staying below the long-term target of 60-65%. This, in turn, has been helping it reduce rates in select states while maintaining desired returns.
ROOT Shares Seem Expensive
The stock is overvalued compared with its industry. It is currently trading at a price-to-book multiple of 13.17, higher than the industry average of 1.63.
Image Source: Zacks Investment Research
Other providers of automobile and renters insurance products like Lemonade (LMND - Free Report) and EverQuote (EVER - Free Report) are also trading at a premium to its industry.
ROOT’s Return on Capital
Return on equity (ROE) in the trailing 12 months was 16.3%, outperforming the industry average of 8.3%. ROE, a profitability measure, reflects how effectively a company is utilizing its shareholders. It is noteworthy that ROOT has been generating improved ROE.
Image Source: Zacks Investment Research
The same stays true for return on invested capital (ROIC), which has been improving over time. This reflects ROOT’s efficiency in utilizing funds to generate income. However, ROIC in the trailing 12 months was 10.6%, higher than the industry average of 6.4%.
Image Source: Zacks Investment Research
Analysts’ Optimism Raises Hope in ROOT
The consensus estimate for 2025 and 2026 moved 64.1% and 30% north in the last seven days, respectively, reflecting investor optimism.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for 2025 implies a 116.8% year-over-year plunge, while the same for 2025 suggests a 322.1% upsurge.
The company has a Growth Score of A.
What to do With ROOT Shares Now?
The insurer attained operational efficiency by ramping up investments in pricing and underwriting technology — a momentum ROOT intends to retain. Technological advantages have been playing a major role in the insurer’s growth. It has an active reinsurance policy in place that helps it absorb losses and maintain profitability.
A VGM Score of B instills confidence.
Despite its premium valuation, investors can add this Zack Rank #1 (Strong Buy) stock for high returns on their investments. You can see the complete list of today’s Zacks #1 Rank stocks here.