ROOT Moves Above 200-Day SMA: Buy, Hold or Sell the Stock?

Shares of ROOT Inc. ROOT continue to trend up, driven by geographic expansion, growth across automotive and financial services and effective cost management.  ROOT is now trending above its 200-simple moving average (SMA), indicating the possibility of an uptrend ahead. Shares closed at $125.32 yesterday, a 30.8% discount from its 52-week high of $181.14, indicating room for growth. 

The 200-day SMA is a key indicator for traders and analysts to identify support and resistance levels. It is considered particularly important as it is the first marker of an uptrend or downtrend. 

ROOT Price Movement Vs. 200-Day Moving Average

ROOT’s Price Performance YTD

Shares of ROOT have gained 72.6% year to date, outperforming the industry, the Finance sector and the Zacks S&P 500 composite in the said time frame.

ROOT vs. Industry, Sector, S&P 500

Shares of Lemonade LMND have lost 19.5% while those of EverQuote EVER have gained 16.2% year to date.

Factors Favoring ROOT

Root’s growth strategy is driven by geographic expansion, diversification of distribution channels, and targeted investments in high-yield opportunities, which contribute to a consistent rise in policies in force. The Partnership channel has seen strong momentum through growth in automotive, financial services, and agent sub-channels, while disciplined customer acquisition continues to drive the Direct channel.

Prudent management of fixed expenses and strategic marketing spend is expected to support ongoing improvements in operating margins. Additionally, the planned refinancing of Root’s debt facility with BlackRock in October 2024 is expected to reduce interest expenses by 50% in 2025, further enhancing net margin performance.

Over the past three years, Root’s net margin has expanded by an impressive 15,350 basis points, with 2024 marking its first profitable year. The company has also maintained its gross loss ratio below the long-term target of 60–65%, enabling it to selectively lower rates while maintaining profitability targets.

In line with the industry's shift toward technology, Root continues to prioritize telematics and data-driven pricing models as key drivers of accelerated growth.

The consensus estimate for 2025 earnings has moved 517% north, while that for 2026 has moved 94.3% north in the past 30 days.

ROOT Shares Trading at a Premium Valuation 

The stock is overvalued compared with its industry. It is currently trading at a price-to-book multiple of 8.33, higher than the industry average of 1.63.

ROOT shares are also expensive compared to Lemonade and EverQuote.

ROOT’s Return on Capital

Return on equity (ROE) in the trailing 12 months was 27.3%, outperforming the industry average of 8.3%. ROE, a profitability measure, reflects how effectively a company is utilizing its shareholders’ funds. 

The same holds true for return on invested capital (ROIC), which has been improving over time. This reflects ROOT’s efficiency in utilizing funds to generate income. ROIC in the trailing 12 months was 13.3%, higher than the industry average of 6%. 

How to Play ROOT Shares

ROOT, a provider of automobile and renters insurance products, envisions being the largest and most profitable company in the industry.

Root has enhanced its operational efficiency by ramping up investments in cutting-edge pricing and underwriting technologies—a strategic focus it intends to maintain. Technological advancements have been pivotal to the company’s growth. Furthermore, Root’s solid reinsurance framework effectively manages risk and helps ensure continued profitability. Its VGM Score of B instills confidence.

The average target price of five analysts suggests a 5.2% upside from the last closing price.

Despite its premium valuation, investors can add this Zack Rank #1 (Strong Buy) stock for high returns on their investments. You can see the complete list of today’s Zacks #1 Rank stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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