In one fell swoop, Root, Inc. (ROOT) returned THE BEST earning report of the season after the market closed tonight. YES, even more powerful than both GeneDx (WGS) and Reddit (RDDT). And that says a LOT. Take a look:
Root posted the biggest earnings beat we have seen in a long time. It rivals the "so-called" inflection we saw in SMCI earlier in the year.
After paying down a third of its debt, Root’s future interest expenses have dropped by approximately 50%, tremendously boosting the company’s earnings profile. As such, Root beat estimates dramatically – by over $2.00 – AND achieved profitability.
Even more importantly, the company, as CEO Alex Timm, confirmed is “just getting started:”
Keep in mind, at its heart, Root is an AI company. Root’s proprietary Machine Learning and AI Models provide the unique underpinnings to the company’s Pricing Structure and Underwriting Tech. And its AI Engine is getting exponentially smarter and more efficient.
As the AI Engine has continued to improve, Root has seemingly discovered the Holy Grail of Car Insurance. The company boasts an industry best 58.4% Gross Loss Ratio and on the call Management spoke to their ability to lower prices. A “delightful customer experience” at lower prices than the competition, creates a major advantage over other insurers which should enable Root to grow is market-share even further.
ROOT is most dynamic $1B Revenue Company you've never heard of… For the past 4 Quarters, Root has grown its revenues minimum 160% YoY or more. The company exited Q3 at a $5.40 earnings run-rate, demonstrating the start of a secular earnings growth trend for this insurance disruptor. Take a look. The numbers are jaw-dropping:
Forward numbers will now move up dramatically. Looking ahead to '25, current consensus calls for Root to lose $1.64 next year. We think Root will make $6-8 next year and should exit ‘25 at a $10 earnings run-rate. Revenue-wise, we expect Root to post $1.75B in ’25, well ahead of the consensus call for $1.255B.
In 2026, even on a lower revenue growth rate, we see Root making $2.05B in revenue, and believe the company will exit 2026 at a $15 dollar run rate.
Similarly to what we saw in the most powerful Inflection Points of this year – POWL, SMCI, WGS – and not withstanding its incredible move in the after-hours, when you factor in the secular $7 improvement in earnings that materialized tonight, Root’s multiple has actually decreased by 50%.
We believe ROOT is headed to new 52wk Highs and sprints to $130 by Q1’25. Longer term, we attach 70% odds ROOT can head to $200-250 over the next 18mo.
ROOT traded 450k shares in the post-market. Based on the impressive after-hours run rate, we expect the stock to trade 10-15x its average daily volume of ~230k shares. Once we clear through the Triple Top Level at the $86-$87 zone, we see a measured move to around $130. Like all the best quadruple-barrelled Inflection Points, it all lines up. Just as we observed in Reddit yesterday.
Final note: ROOT has a very tiny float at only 10.6M shares. Over the next few weeks, we expect the stock to log a number of $5 gains on 500-750k share volume days. We therefore plan, to accumulate our full position on the first flush in the stock, during the first 10min of trading tomorrow.
Stop Loss: Due to what we believe is still an undervalued stock in the $70's, we plan to utilize a Time Stop and ride this position. We want to maximize our gains to our ultimate long-term price zone of $200-$250 over the next 18mo.
Inflections like ROOT are very rare. When they do come along, we should strive to take full advantage.
If inflation comes roaring back, it could cause Roots growth to be slower than expected. Competition risk is always a factor, especially in the AI Arena, where so many companies are investing heavily in the space. ROOT is also a thinly-traded stock during normal market conditions, so this is a technical aspect to be cognizant of.
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Disclosure: We are long ROOT stock and calls. We may change our positioning at a moment’s notice, without notifying you of any such moves.
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