Back to top

Image: Bigstock

ROOT Loses 33% in 3 Months, Trades at a Premium: How to Play the Stock

Read MoreHide Full Article

Key Takeaways

  • ROOT stock slid 32.9% in three months, underperforming its industry, sector and the S&P 500.
  • The insurer leverages AI pricing and partnerships to expand state presence and boost policy growth.
  • ROOT's ROE is 38.2% and ROIC is 16.7%, both topping industry averages, with analyst forecasts on the rise.

Shares of Root Inc. (ROOT - Free Report)   have lost 32.9% in the past three months compared with the industry’s decline of 0.6%. In the meantime, the sector has risen 6.8% and the Zacks S&P 500 composite has gained 9.1%. 

ROOT, a provider of automobile and renters insurance products, envisions being the largest and most profitable personal lines insurance carrier in the United States.

It has been trading below its 50-day simple moving average (SMA), signaling a short-term bearish trend.  The 50-day SMA is a key indicator for traders and analysts to identify support and resistance levels. It is considered particularly important as it is the first marker of an uptrend or a downtrend. 

ROOT Vs Industry, Sector & S&P 500 

Zacks Investment Research
Image Source: Zacks Investment Research

Shares of its peer Lemonade (LMND - Free Report) have gained 50.8%, while those of another peer, EverQuote (EVER - Free Report) , have lost 4.2% in the past three months.

Lemonade is pursuing growth by acquiring profitable businesses and prioritizing its car insurance segment, which it expects to be a key driver of growth. Alongside diversification into renters, homeowners, pet, and life insurance, the company seeks to expand its market presence. Leveraging technology and AI for efficiency and a competitive edge, Lemonade aims to scale operations and achieve significant expansion. Lemonade has set a target of growing in-force premiums by 28% in 2025, supporting its ambition of tenfold growth.

EverQuote, an online insurance marketplace, sees strong potential from the recovery in auto insurance carrier demand and is actively expanding into new verticals. The company expects to capitalize on the growing shift toward online insurance sales, supported by rising consumer traffic, increased quote requests and innovative advertiser offerings. These factors are anticipated to drive its performance, with EverQuote projecting third-quarter 2025 revenues in the range of $163 million to $169 million, reflecting its growth momentum and strategic positioning.

 

ROOT Shares Are Expensive

Root shares trade at a price-to-book value ratio of 5.83, above the industry average of 1.57.
 

Zacks Investment Research
Image Source: Zacks Investment Research

The company has a Value Score of B.

Average Target Price for ROOT Suggests Downside

Based on short-term price targets offered by five analysts, the Zacks average price target is $130.60 per share. The average suggests a 41.6% upside from the last closing price.

What's Driving ROOT?

ROOT is heavily leaning on technology to improve pricing, one of the strategic pillars of growth, and is thus building on AI and machine learning for improving its pricing.  This also helped partnership channel new writings grow nearly three times year over year. The insurer launched a new pricing model in several states during the second quarter of 2025.

ROOT believes it is yet to grow in the massive market. Its growth plan focuses on expansion across three key areas – state expansion, channel expansion and partnerships. Its growth strategy emphasizes geographic expansion, diversification of distribution channels and targeted investments in high-return opportunities, leading to a consistent increase in policies in force.

To expand its addressable market with independent agents, the company recently launched Root Insurance through the industry’s two largest comparative raters, EZLynx and PL Rating.

Growth in the Partnership channel is being driven by expansion across automotive, financial services, and agent sub-channels, while strategic investments in customer acquisition continue to enhance the Direct channel.

Prudent control of fixed expenses combined with targeted marketing investments is expected to further improve margins. Additionally, the planned refinancing of the debt facility with BlackRock in October 2024 is projected to cut interest costs by 50% in 2025, supporting ongoing net margin growth.

The insurer has successfully maintained its gross loss ratio below the long-term target of 60-65%, enabling selective rate cuts while sustaining the desired returns. Root’s strong business model has delivered some of the industry’s best loss ratios. Its net margin has improved significantly, expanding by 15,350 basis points over the past three years. Notably, 2024 marked a milestone as the company achieved profitability for the first time.

ROOT’s Return on Capital

Return on equity (ROE) in the trailing 12 months was 38.2%, outperforming the industry average of 7.7%. ROE, a profitability measure, reflects how effectively a company is utilizing its shareholders’ funds. It is noteworthy that ROOT has been generating improved ROE.

Zacks Investment Research
Image Source: Zacks Investment Research

The same holds true for return on invested capital (ROIC), which has been improving over time. This reflects ROOT’s efficiency in utilizing funds to generate income. ROIC in the trailing 12 months was 16.7%, higher than the industry average of 5.9%.

Zacks Investment Research
Image Source: Zacks Investment Research

Analysts’ Optimism Instills Confidence in ROOT

The Zacks Consensus Estimate for 2025 and 2026 earnings has moved 219.8% and 136.8% north, respectively, in the past 60 days, reflecting investor optimism.
 

Zacks Investment Research
Image Source: Zacks Investment Research

The Zacks Consensus Estimate for 2025 and 2026 earnings implies a 105.2% and 14.1% year-over-year increase, respectively. The company has a Growth Score of A.

What to Do With ROOT Shares Now?

ROOT intends to continue to invest in business, technology and growth in the second half of 2025, which might impact its near-term net income profitability. However, these near-term investments will eventually help it grow market share, sustainably expand margins over the long term and create shareholder value. A VGM Score of B instill 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.


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


EverQuote, Inc. (EVER) - free report >>

Lemonade, Inc. (LMND) - free report >>

Root, Inc. (ROOT) - free report >>

Published in