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 …