Root: Solid Q1 Earnings Yet Down 67% From IPO, Not Stabilizing (Preview)

Company Update (ROOT US) (Downgrade to Neutral)

Summary

• Root stock closed at $8.99 on Thursday, one third of its $27 IPO price last October, having fallen another 33% since our initiation.

• Q1 2021 results released on May 5 were strong operationally, with growth resuming after 3 quarters and Loss Ratio again improving.

• Root is increasing its marketing spend and expanding into more states, and 2021 outlook is still for Gross Written Premiums to grow 31-39%.

• However, we see no sign that Root's share price decline will reverse soon, partly due to wider sentiment; valuation still exceeds 3x premiums.

• Root is outside our investment parameters, and our previous hope of a technical rebound was wrong. We downgrade our rating to Neutral.

Why is Root Stock Dropping?

Root Insurance Company stock closed at $8.99 today (May 13, 2021), one third of the $27 price at which it went public last October.

We initiated a Buy rating on Root, Inc. stock in March, after its price has already halved since IPO. Since then Root shares have fallen by another 33%.

Root …