Root, Inc. (ROOT) offers automobile, homeowners, and renters insurance products in the United States. ROOT has started to develop brokerage technology and is in talks with other insurers to embed it, introducing a new source of fee revenue. The company is also asking its shareholders to approve a reverse stock split, consolidating as many as 25 shares into one, to shore up the prices of its shares.

The stock has lost 14.2% over the past month and 58.4% over the past six months to close Friday’s trading session at $1.93. In addition, it is currently trading 86.9% below its all-time high of $14.70, which it hit on June 9, 2021. Moreover, the stock’s forward P/B of 2.72x is 147.8% higher than the industry average of 1.10x. So, ROOT’s near-term prospects look bleak.

Here’s what could shape ROOT’s performance in the upcoming months:

Top Line Growth Doesn’t Translate into Bottom Line Improvement

For the fiscal first quarter ended March 31, 2022, ROOT’s revenue surged 16% year-over-year to $79.70 million. However, its total liabilities came in at $982.50 million for the period ended March 31, 2022, compared to $670.90 million for the period ended December 31, 2021. The company’s net loss came in at $76.40 million, compared to $99.60 million in the prior-year period. Its loss per share came in at $0.30, compared to $0.40 in the year-ago period.

Low Profitability

In terms of trailing-12-month CAPEX/Sales, ROOT’s 1.16% is 25.3% lower than the industry average of 1.55%. Moreover, the stock’s trailing-12-month ROCE, ROTC, and ROTA are negative compared to the industry averages of 12.75%, 6.22%, and 1.29%, respectively.

Unfavorable Analyst Estimates

Analysts expect ROOT’s revenue to decrease 4.5% in the current quarter and 14.7% in the current year. Also, its EPS is expected to remain negative in the current quarter, next quarter, current year, and next year.

POWR Ratings Reflect Bleak Prospects

ROOT has an overall rating of D, which equates to Sell in our POWR Ratings system. The POWR Ratings are calculated by accounting for 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. ROOT has a D grade for Quality, in sync with its lower-than-industry profitability ratios.

The stock has a D grade for Stability, consistent with its beta of 2.06.

ROOT is ranked #53 out of 56 stocks in the Insurance – Property & Casualty industry. Click here to access ROOT’s ratings for Growth, Value, Sentiment, and Momentum.

Bottom Line

Given ROOT’s lower-than-industry profitability and weak earnings and revenue growth prospects, the stock doesn’t look well-positioned to survive the ongoing market volatility. So, it is best avoided now.

How Does Root (ROOT) Stack Up Against its Peers?

While ROOT has an overall POWR Rating of D, you might want to consider investing in the following Insurance – Property & Casualty stocks with an A (Strong Buy) or B (Buy) rating: Protective Insurance Corporation (PTVCB), Fairfax Financial Holdings Limited (FRFHF), and PROSIGHT GLOBAL, INC. (PROS).

ROOT shares were trading at $1.87 per share on Monday afternoon, down $0.07 (-3.37%). Year-to-date, ROOT has declined -39.68%, versus a -13.36% rise in the benchmark S&P 500 index during the same period.

About the Author: Nimesh Jaiswal

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...

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