Root: Shares Up 53% Last Week And Still Trading Below Cash - But Avoid

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

Summary

• Root shares rose 53% last week, which we believe was due to speculation amid a market rebound and not warranted by fundamentals.

• Business shrunk in Q4 2021 after drastic cuts in marketing but remained heavily loss-making. The headcount was cut by 20% in January.

• Management guides to a significant year-on-year decline in premiums and $200m in Operating Loss in H1 2022.

• Root is increasingly relying on Carvana as a distribution channel, where it does not use telematics, its supposed differentiator.

• At $2.06, Root is trading below net cash and at 0.7x Q4 Premiums In Force, but we do not believe the business will improve. Avoid.

Introduction

We review our Hold rating on Root, Inc. after shares rose 53% last week (March 14-18). (A Hold rating for us means a stock should be avoided.) As of 13:30 EST, Root, Inc. stock is down 4.6% at $2.06.

We downgraded our rating on Root to Hold in May 2021. Even after its sharp rise last week, ROOT share price is down 77% since our downgrade.

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