Root Inc. (NASDAQ: ROOT) stock price has gone vertical as it more than doubled in the past four days. It has jumped from the year-to-date low of $7.27 to almost $26. This rally has brought its market cap to over $330 million. Still, despite this rally, the stock remains 95% below its all-time high.
Why is ROOT surging?Root Inc. is a fintech company in the automotive insurance industry. It acquires its customers through its mobile apps and provides what it believes to be superior products.
In this case, the company believes that it can gain market share from the biggest insurance companies in the US like Geico and Progressive.
The main reason for the Root stock surge is that it published some of its best quarterly earnings on record.
Its total revenue in Q4 surged by 173% to $194 million, beating analysts estimates by over $67 million.
This revenue growth happened as the company boosted its gross written premiums to over $279 million during the quarter.
Although it is still making losses, the company narrowed its loss to about $24 million while its adjusted EBITDA neared the break-even point. It came in at minus $300k and the management believes that it will turn positive this year.
These numbers mean that its business is doing well. For the year, the company’s revenue jumped to $399 million, a big improvement from the $275 million it made in 2019.
It has also been narrowing its net loss in the past few years. Its total annual net loss rose to $521 million in 2021 due to the pandemic. In the last two full years, this loss has dropped to just $147 million.
In this case, therefore, analysts believe that the company will continue doing well as it gains market share in the insurance industry. Analysts expect that its total revenue will soar to $865 million this year followed by $1.09 billion in 2025.
Root Inc. stock price forecast
Turning to the daily chart, we see that the Root share price has gone vertical in the past few days. Along the way, the stock has flipped the important resistance point at $14.75, its highest swing in June and December last year.
The stock has gone too far from the 50-day and 100-day moving averages. Most importantly, its key oscillators like the Relative Strength Index (RSI) and the Percentage Price Oscillator (PPO) have moved to the most overbought level in months.
Therefore, my view is that the stock will move to a distribution phase following the current mark-up. This will happen as most investors and traders start to take profits following the recent surge.
If this happens, the stock will likely drop below $20 and possibly retest the crucial support point at $14.75.
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