Why ROOT May Struggle in 2026 Despite Strong Long-Term Potential
My thoughts on $Root, Inc.(ROOT)$
Long term, I see a great future for the company. Insurance is a huge vertical that hasn't been as disrupted as other segments of the financial services industry, largely because of the complexity.
That said, currently the market doesn't like companies in an "Investment period". We saw that with $Nu Holdings Ltd.(NU)$ , which saw its stock fall 10% after saying that "2026 will be an investment year". Root said similarly that net income will decline in 2026.
Essentially, Root is investing a lot in AI, R&D, and embedded partnerships to compete with the larger and well-established insurance companies. They also guided for higher loss ratios as they expand to new states. Which requires offering lower prices to acquire customers, and also, Root lacks data to accurately price insurance risk in those states.
Simply put, 2026 and 2027 will not be strong years in terms of profitability, so the market views them as "lost years". This is why the stock is down 33% YTD. A P/E of 25 is a bit too high in this market for a stock that won't grow earnings for the next 2 years.
So while in the long term, 3-10 years, Root looks like a good value, in the short term, I wouldn't be surprised if it went lower. As of today, 2026, net income consensus estimates imply a 9.5% decease, if its higher than that, let's say 15-20%, the stock can drop another 20-40%.
So personally, I am staying away, at least in 2026.
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