Even on a year-to-date chart, today’s post-earnings bull gap in Root (ROOT) is easy to spot. The stock spiked more than 191% at its intraday high of $118.15 - and though ROOT has pared its gains considerably to trade around $75 this afternoon, it’s still overbought, based on its 14-day Relative Strength Index (RSI). This could be a tough one to trade in the short term, though, as the chart suggests ROOT can stay overbought for longer than you might expect.
Root is still up more than 85% at last check after reporting net income profitability for the first time, driven by strategic acquisition investments, improved loss ratio performance, and efficient management of fixed expenses. The insurtech company also successfully refinanced its debt, reducing its principal amount and interest expenses, which further strengthens its financial position.
The company's partnership channel is expanding rapidly, and it continues to grow its policies in force, indicating sustained business momentum. Root plans to reinvest its profits into the business to focus on long-term value creation, despite an anticipated increase in operating expenses in the near term.
With a one-year return of 774%, ROOT is outperforming compared to its competitors like Lemonade (LMND) and Hippo (HIPO). It’s also priced at a discount to both, based on ROOT’s current forward price-to-sales ratio of 0.55.
While ROOT is clearly best reserved for investors who have a healthy appetite for volatility, the stock’s average rating on Wall Street is a “moderate buy.” However, it’s currently trading well above its mean price target of $61.71.
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