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There's been a major selloff in Root, Inc. (NASDAQ:ROOT) shares in the week since it released its annual report, with the stock down 24% to US$13.49. Results overall weren't great; even though revenues of US$402m beat expectations by 17%, statutory losses ballooned to US$4.81 per share, substantially worse than the analysts had expected. The analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. We thought readers would find it interesting to see the analysts latest (statutory) post-earnings forecasts for next year.
Taking into account the latest results, the current consensus, from the seven analysts covering Root, is for revenues of US$273.4m in 2021, which would reflect a stressful 32% reduction in Root's sales over the past 12 months. The loss per share is expected to greatly reduce in the near future, narrowing 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. So it's pretty clear the analysts have mixed opinions on Root even after this update; although they upped their revenue numbers, it came at the cost of a regrettable increase in per-share losses.
There was no major change to the consensus price target of US$21.92, with growing revenues seemingly enough to offset the concern of growing losses. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. 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.
One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. 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. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 3.2% annually for the foreseeable future. It's pretty clear that Root's revenues are expected to perform substantially worse than the wider industry.
The Bottom Line
The most important thing to note is the forecast of increased losses next year, suggesting all may not be well at Root. They also upgraded their revenue estimates for next year, even though sales are expected to grow slower than the wider industry. The consensus price target held steady at US$21.92, with the latest estimates not enough to have an impact on their price targets.
Keeping that in mind, we still think that the longer term trajectory of the business is much more important for investors to consider. At Simply Wall St, we have a full range of analyst estimates for Root going out to 2025, and you can see them free on our platform here..
Don't forget that there may still be risks. For instance, we've identified 4 warning signs for Root (2 are significant) you should be aware of.
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.
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