Root Insurance Stock Skyrockets with 1,262% Surge in 2024

Since the beginning of 2024, Root‘s (NASDAQ: ROOT) stock has soared 1,262%. This remarkable growth highlights the disruptive company’s progress in vital areas including customer expansion, increased policy issuance, and enhanced underwriting capabilities that have led to improved profitability.

Root has consistently exceeded analysts’ earnings expectations over the past few quarters, resulting in an unexpected profit in 2024. The company is solidifying its position as a competitor in the automotive insurance market, and its prospects for sustained success seem bright. Here’s what investors need to know about this emerging growth stock.

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Root’s Innovative Approach to Auto Insurance

Root employs an unconventional method of pricing automotive insurance policies based on driving behavior rather than traditional demographic factors utilized by legacy insurers. The company leverages mobile technology to monitor drivers and offer personalized quotes. This telematics approach has been gaining traction in the industry, with Progressive being one of the pioneers that have reaped the benefits for years.

To receive a quote, prospective customers must download the Root app and drive with it for a few weeks. The app quietly tracks behaviors such as speed, braking, and distractions. Root then generates quotes that reflect each driver’s specific habits. This wealth of data allows Root to refine its pricing models and achieve a balance between growth and profitability.

Image source: Getty Images.

Significant Improvements in Underwriting

While telematics plays a crucial role, it is not the sole factor for Root’s investment appeal. Upstart insurers must establish effective pricing models while growing their customer base, a complex process that can take years.

Understanding key insurance industry ratios is vital. The expense ratio indicates how much a company spends relative to premiums collected, while the loss ratio shows claims paid out compared to premiums. The combined ratio, which is the sum of these two metrics, is critical; profitable insurers aim for a combined ratio below 100%, signifying greater profitability.

Root has made notable strides in this area. The company reported a combined ratio of 195% in 2022, meaning it spent $1.95 on expenses and losses for every dollar earned in premiums. This improved to 133% in 2023, and impressively dropped to 96.4% in the most recent year, marking the first instance of underwriting profit.

This turnaround contributed to a net income of $30.9 million, a striking recovery from the significant losses of $147 million in 2024 and $298 million in 2023.

ROOT Revenue (Quarterly) data by YCharts.

This remarkable progression in underwriting surprised analysts and is a significant factor in the stock’s impressive rise. Prior to last year, Root faced serious challenges in aligning its underwriting operations, leading to a staggering decline of over 99% in stock value from its initial public offering in 2020 to early 2023.

Despite these struggles, Root continued to grow. It reported 414,862 policies in force and earned premiums of $1.2 billion, nearly double the amount from the previous year.

Future Growth Potential

Root’s rising profitability marks a pivotal moment for the company, prompting some investors, myself included, to build small positions in this insurer. The company’s significant improvements in underwriting position it well within the competitive automotive insurance landscape.

Moreover, Root has room to grow. Currently, it operates in 35 states, with Minnesota being the latest addition. Further expansion into other states could fuel additional premium growth. Root’s progress makes it an attractive growth stock for long-term investors, even after its price surge.

Seize This Opportunity for Future Gains

Ever felt you missed the chance to invest in successful stocks? Don’t worry; there’s still a chance.

Occasionally, our expert analysts issue a “Double Down” stock recommendation for companies poised for growth. If you’re concerned you’ve missed your opportunity to invest, it’s worth considering now before it’s too late. Here’s a glimpse at past performances:

• Nvidia: If you had invested $1,000 when we doubled down in 2009, you’d have $300,764!
• Apple: An investment of $1,000 at the time of our 2008 recommendation would now be worth $44,730!
• Netflix: If you invested $1,000 following our 2004 recommendation, your investment would have grown to $524,504!

We are currently issuing “Double Down” alerts for three exceptional companies, making this a unique opportunity.

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*Stock Advisor returns as of March 3, 2025

Courtney Carlsen has positions in Progressive and Root. The Motley Fool has positions in and recommends Progressive. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.