Up 675% YTD, What's Behind the Breakout in Root Stock?

Columbus, Ohio-based Root Inc. (ROOT) is a provider of online insurance services. More specifically, it is a direct-to-customer provider of insurance coverage for autos, renters, and homeowners, and Root's mobile app claims to gather and analyze real-time driving data from customers in order to provide the most accurate insurance quotes. That places Root squarely in the “insurtech” market niche, which - similar to fintech - aims to revolutionize the insurance industry with new technological advances.

Root’s stock has been breaking out this year, with the stock up an astonishing 675% on a year-to-date basis. The shares set a new 52-week high earlier today, but still trades about 85% below all-time highs.

What's Driving the ROOT Breakout?

This year's price breakout began in earnest after ROOT posted its Q4 earnings in late February. The insurance provider reported an adjusted loss of $1.68 per share for the period, as revenue surged 173% year-over-year to $194.8 million. The results were significantly better than Wall Street expected, with the consensus calling for a per-share loss of $2.49 on revenue of just $127 million.

Looking ahead, analysts expect ROOT to continue narrowing its bottom-line losses. The full-year loss for fiscal 2024 is projected at $7.87 per share, compared to $10.24 per share in 2023. In fiscal 2025, losses are expected to narrow further to $5.03 per share.

Analysts React to Q4 Earnings

Following the forecast-crushing report, analysts rushed to upwardly revise their ratings on ROOT.

Keefe Bruyette Woods upgraded the stock to "Outperform," and more than doubled its price target to $22. Likewise, Cantor Fitzgerald raised its rating on ROOT to "Buy" from "Hold" after earnings, with a price-target hike to $13 from $9.

Jefferies was even more enthusiastic, writing, "The company executed a 'better-than-industry' target loss ratio this quarter, setting a path to profitable growth, market share gains and scalability for a viable business model." The brokerage firm upgraded ROOT to "Buy" and set a $40 price target, up from $10. 

Over the last two months, the stock's consensus rating on Wall Street has shifted from a “Hold” to a “Moderate Buy,” with 8 analysts in coverage. Among that group, there are 3 “Strong Buys,” 1 “Buy,” and 4 “Holds.”

ROOT Trading Volume Spikes

Whether it was the massive Q4 beat or the bullish analyst notes that followed, ROOT garnered quite a bit of new attention from traders afterward. 

Ahead of the earnings release, the stock's average daily trading volume in 2024 totaled 83,220 shares. After the report, that average daily volume figure has jumped to about 1.34 million shares.

Is ROOT Stock Still a Good Buy?

At current levels, ROOT trades nearly 5x higher than its mean price target of $16.88 from analysts - and the current share price of $83.50 is more than double the relatively new Street-high target of $40 from Jefferies. 

That said, with a forward price/sales ratio of 1.13, ROOT still looks reasonably valued relative to insurtech peers like Hippo Holdings (HIPO) and Palomar (PLMR).