Shareholders in Root, Inc. (NASDAQ:ROOT) had a terrible week, as shares crashed 24% to US$13.49 in the week since its latest annual results. Root beat revenue forecasts by a solid 17%, hitting US$402m. Statutory losses also blew out, with the loss per share reaching US$4.81, some 23% bigger than the analysts expected. Earnings are an important time for investors, as they can track a company's performance, look at what the analysts are forecasting for next year, and see if there's been a change in sentiment towards the company. So we collected the latest post-earnings statutory consensus estimates to see what could be in store for next year.
Taking into account the latest results, the seven analysts covering Root provided consensus estimates of US$273.4m revenue in 2021, which would reflect a disturbing 32% decline on its sales over the past 12 months. Losses are predicted to fall substantially, shrinking 67% to US$2.71. Before this earnings announcement, the analysts had been modelling revenues of US$249.2m and losses of US$2.20 per share in 2021. While this year's revenue estimates increased, there was also a very substantial increase in loss per share expectations, suggesting the consensus has a bit of a mixed view on the stock.
The consensus price target stayed unchanged at US$21.92, seeming to suggest that higher forecast losses are not expected to have a long term impact on the valuation. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. There are some variant perceptions on Root, with the most bullish analyst valuing it at US$30.00 and the most bearish at US$13.00 per share. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.
Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. We would highlight that sales are expected to reverse, with the forecast 32% revenue decline a notable change from historical growth of 76% over the last year. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 3.2% next year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Root is expected to lag the wider industry.
The Bottom Line
The most important thing to take away is that the analysts increased their loss per share estimates for next year. They also upgraded their revenue estimates for next year, even though sales are expected to grow slower than the wider industry. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.
With that in mind, we wouldn't be too quick to come to a conclusion on Root. Long-term earnings power is much more important than next year's profits. We have estimates - from multiple Root analysts - going out to 2025, and you can see them free on our platform here.
Before you take the next step you should know about the 4 warning signs for Root (2 make us uncomfortable!) that we have uncovered.
If you decide to trade Root, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted
What are the risks and opportunities for Root?
Revenue is forecast to grow 7.84% per year
Does not have a meaningful market cap ($86M)
Volatile share price over the past 3 months
Currently unprofitable and not forecast to become profitable over the next 3 years
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.