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Why Shares of Root Are Falling Today

By Bram Berkowitz – Nov 15, 2021 at 3:32PM

Key Points

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The company recently got downgraded by an analyst.

What happened

Shares of the insurtech company Root (ROOT 19.93%) had fallen nearly 10% as of 3:12 p.m. EST after an analyst at Barclays downgraded the company and assigned the stock a new price target.

So what

Barclays analyst Tracy Benguigui demoted Root from an equal-weight rating to an underweight rating, meaning she expects shares to underperform the industry as a whole. Benguigi also cut her price target on Root from $5 per share to $3 per share, implying a downside of roughly 40% from its current stock price.

Red line with arrow moving downward.

Image source: Getty Images.

Last week, shares of Root surged after the company reported earnings results for the third quarter of the year that beat analyst expectations. The company also provided a more promising outlook for the fourth quarter and 2022.

But since going public in October 2020, Root has not had an easy time, with shares down roughly 79%. The company is aiming to disrupt the auto insurance space by using behavioral-based analytics to determine insurance rates. Wall Street has not been impressed so far.

Now what

I think Root's concept is interesting and the company does have the potential to be a disruptor in the insurance space. But it's still early days and Root still has a long way to go to achieve profitability. At this point, I'd probably want to see more progress before dipping my toe in the water. 

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool recommends Barclays. The Motley Fool has a disclosure policy.

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