Columbus, Ohio-based insurance company Root, Inc (ROOT) – Get ROOT, INC. Report has been trending on the main discussion boards. Root operates a direct-to-consumer business model and serves customers primarily through mobile applications. Near all-time lows, the $1.2 billion market cap company could be a good opportunity to buy the dip, when the rest of the market still seems richly valued.
Supporting the bull thesis are (1) Wall Street optimism, as share price target of $6.33 suggests 25% upside potential, and (2) elevated short interest that could lead to a short squeeze. Today, Wall Street Memes brings the ROOT case to discussion.
Undervalued amid skepticism
To be clear, Wall Street experts are not necessarily thrilled about ROOT stock. The consensus rating among 10 analysts is neutral. However, average fair value of $6.33 per share suggests compelling 25% gain potential from current levels, at last check.
The bull case has been presented by Cantor Fitzgerald analyst Josh Siegler. Despite lowering his price target sharply to $8 from $21, the analyst has maintained his buy rating on the stock. According to him, positive top-line results sustain bullishness despite Root’s loss ratio underperformance, which he attributes to “inflationary pressures and higher vehicle miles traveled”.
On the bearish side, Bank Of America’s analyst Joshua Shanker has a $5 price target on the stock and a sell recommendation. His stance is mainly supported by competitors like Progressive (PGR) and Allstate (ALL) having a sizeable advantage over ROOT. He believes that Root will not be cash flow positive until 2027.
On the fence, eight analysts have neutral ratings on ROOT. Wolfe Research analyst Michael Zaremski is one of them, with a $5 price target. According to him, “insufficient” progress on key performance indicators is the key reason behind his skepticism.
Short selling target
ROOT has been a bear magnet lately. Based on Yahoo Finance data, 24% of the company’s float of 96 million shares is currently shorted – a very high figure, to be clear. Behind all the bearishness are possible long-short strategies on insurance stocks that assume Root will underperform its peers on fundamentals.
However, this coin has two sides. ROOT has popped up on web forums, which could expose bears to a bull attack. Elevated short interest could turn against short sellers and lead to a short squeeze in the short-to-medium terms.
What to expect
Root stock’s all-time lows sit below even the most bearish price targets, which suggests that the worst for ROOT may have been left behind. The combination of (1) deals aimed at driving long-term growth (Root has recently signed an exclusive $126 million partnership with Carvana to develop integrated insurance solutions), (2) bargain hunting and (3) high short interest could reasonably create a buying wave. Or at least bulls would hope so.
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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)