Root, Inc. (ROOT): A Bull Case Theory

We came across a bullish thesis on Root, Inc. on Rose’s Substack by Rose Celine Investments. In this article, we will summarize the bulls’ thesis on ROOT. Root, Inc.’s share was trading at $65.79 as of January 28th. ROOT’s trailing and forward P/E were 19.56  and 2.52, respectively according to Yahoo Finance.

Root, Inc. provides insurance products and services in the United States. The company offers automobile and renters insurance products. ROOT is increasingly demonstrating the power of its data and AI-driven edge, as evidenced by improving loss ratios and a successful partnership model. The company’s core idea is straightforward: use real driving data to price insurance accurately, rather than relying on estimates.

By tracking driver behavior through its app, ROOT attracts safer customers, which lowers losses over time. Its growing trove of driving data forms a durable moat—better data drives better pricing, which attracts better customers and compounds profitability. Since 2021, ROOT has shifted from costly direct marketing to an embedded distribution model, allowing customers to purchase insurance seamlessly when buying a car. Premiums from partners tripled last quarter, and this channel remains early in its growth trajectory.

Q2 revenue rose 21% to $383 million, though the stock declined after earnings due to management signaling continued investments in growth, technology, and partnerships through H2 2025. While near-term profits may be muted, these investments strengthen long-term positioning. Notably, ROOT’s loss ratio improved to 60%, outperforming PGR’s 67%, highlighting its competitive advantage in risk management. The company faces risks, such as dependency on key partners or potential slowing growth, but these appear manageable. With a target combined ratio near 80%, ROOT could achieve high-teens net margins, and expansion into renters or home insurance offers additional upside.

Trading at roughly 1x sales, the stock remains undervalued relative to peers despite its growth, technology, and compounding moat. CEO Alex Timm’s significant stake underscores a long-term focus. As partnerships scale and data advantage strengthens, ROOT could evolve into a tech-like insurer with lower costs, higher retention, and substantial long-term upside, potentially becoming one of the market’s best small-cap compounders over the next 5–10 years.

Previously, we covered a bullish thesis on Root, Inc. (ROOT) by Creative-Cranberry47 in May 2025, highlighting its strong Q1 earnings, growing partnerships, AI-driven underwriting, and potential expansion into adjacent insurance lines. ROOT’s stock has depreciated by approximately 55.37% since our coverage due to near-term profitability concerns. Rose Celine Investments shares a similar view but emphasizes data-driven pricing, improving loss ratios, and embedded partnerships as key growth drivers.

Root, Inc. is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 22 hedge fund portfolios held ROOT at the end of the third quarter which was 28 in the previous quarter. While we acknowledge the risk and potential of ROOT as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ROOT and that has 10,000% upside potential, check out our report about this cheapest AI stock.

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Disclosure: None.