Root Inc (NASDAQ:ROOT) is down 20% in a week after the company announced worse than anticipated Q2 2021 financial results and also reduced its guidance for the rest of the year. The digital-focused insurance firm’s announcement backtracked gain the stock had ramped aftermarket trade on Wednesday following the announcement of a collaboration with and investment from Carvana, an online car dealer.
According to Evercore ISI analyst David Motemaden highlights the company’s underwriting underperformance. Root reported an 88.3% direct loss ratio worse than the 80% estimated Motemaden was holding for.
In a note to clients, Motemaden indicted that although underwriting has been worse industrywide, it is surprising the magnitude of deterioration witnessed. Following the disappointing quarter, Root has re-evaluated its distribution strategy from performance marketing because of a considerable increase in cost in the channel and the Carvana partnership. The analyst said that the concern now is how the results trend since the loss ratio will likely worsen with marketing spending falling. So in the coming days, ROOT is worth keeping an eye on.
Market Reaction:
On Tuesday, ROOT stock jumped 0.91% at $5.55 with more than 9.25 million shares, compared to its average volume of 4.75 million shares. The stock has moved within a range of $5.37 – 5.83 after opening the trade at $5.40.
