Root: 85% Down From IPO After Q3 Results, But Still Too Speculative

(Preview) Company Update (ROOT US) (Neutral)

Summary

• Root's share price is now down 85% from its IPO. Its market capitalization is just $1bn, compared to net cash of $764m.

• Q3 results and recent news have given little comfort to disillusioned investors. Growth was low and profitability did not improve.

• New distribution with Carvana and independent agents risk taking away Root's telematics focus and increasing operational complexity.

• 2021 operating loss is expected to exceed $500m. Guidance implies the business will shrink in Q4, though a 2022 turning point is hinted.

• Even at $4.10, we find Root shares to be too speculative, as we do not have confidence that performance and growth will improve. Avoid

Introduction: Why Is Root Stock Dropping?

Root, Inc. shares reached another record low on Tuesday (November 23), falling below $4 for the first time at one point and closing at $4.10, 85% below its IPO price of $27 in October 2020.

We downgraded our rating on Root to Neutral in May. At $4.10, Root's share price has more than halved since our…