$6.50
$37.00
bear $6.50
base $26.60
bull $37.00
margin of safety $12.00
market price* $50.47
Root sells personal auto insurance (and some renters insurance) in the United States, directly through its app and website and through partners. The most important partner is Carvana, whose online car-buying platform offers Root's policies at checkout. Revenue grew from $455 million in 2023 to $1,177 million in 2024 and $1,517 million in 2025. Roughly 47 percent of 2025 premiums came from customers in a small group of states, and its largest states include Texas, Georgia, Florida and California. How we measure earnings. We start with cash from operations, then remove the swings from working capital, which for an insurer means changes in premiums receivable, reinsurance balances, claim reserves and unearned premiums. We also treat bad debt expense as part of the receivables movement. We deduct stock compensation and the value of warrants issued to Carvana as real costs, and we deduct only maintenance capital spending, not the portion tied to growth. On that basis owner earnings per share were about $(37.38) in 2021, $(20.86) in 2022 and $(9.83) in 2023, then turned positive at $3.03 in 2024 and $2.62 in 2025. Only 2024 and 2025 describe the business as it now operates, so our normal level is $2.83 per share, the middle of those two years. Owner earnings fell about 12 percent in 2025 even as revenue rose 29 percent, because stock and warrant costs more than doubled (from $22.3 million to $59.3 million) and the gross combined ratio (claims plus expenses relative to premiums) rose from 94.7 percent to 97.1 percent. We assume the first year is flat rather than a further 12 percent decline, because the company attributes part of the higher 2025 warrant expense to a one-time cumulative catch-up ($15.3 million increase in Carvana warrant expense) and first-half 2026 net income is higher than a year earlier; we give no credit for growth beyond that. Through the first half of 2026 net income was $61.3 million against $40.4 million a year earlier, but operating cash flow was lower ($66.8 million against $78.8 million), so we did not lift the normal level on that alone. Base case: $26.6 per share. Owner earnings stay flat at $2.83 per share for ten years, then fade to zero over the following ten years as the customer base gradually turns over without any specific renewal engine we can point to. We give no credit for growth. Six-month policies renew repeatedly and the book already written is real, but Root has only two profitable years, share gains and new partners have not yet been demonstrated as repeatable, and margin expansion is not counted. Bear case: $6.5 per share. The Carvana commercial agreement, which gives Root exclusivity on Carvana's platform, is set to expire on September 1, 2027. In this case the partnership volume is lost, underwriting margins thin further from the 97.1 percent level, and owner earnings drop to $2.30 in 2026, $1.50 in 2027 and $0.80 a year for five years, then end. The company also carries a $200 million floating-rate term loan due October 2030 and a gross combined ratio that was 116.4 percent as recently as 2023, so an underwriting reversal is documented, not imagined. Bull case: $37.0 per share. The Carvana agreement is renewed and the partnership channel keeps the book growing, and first-half 2026 net income of $61.3 million, up from $40.4 million, points that way. Owner earnings are $3.60 per share, flat for ten years, then fade over fifteen years. We do not credit further growth because it is not yet secured. What we left out and what we checked. New partners, additional states, telematics pricing advantages and lower reinsurance cessions were left out because none has a multi-year record. As a test of the base case, we checked whether cash flow was flattered by reserve growth: claim reserves rose $70.4 million and unearned premiums $39.8 million in 2025, but premiums receivable and reinsurance payables absorbed part of that, and we removed all of these movements from owner earnings. Debt interest is already paid out of the cash flow we start from, so nothing further is deducted for the term loan. Net income plus depreciation, non-cash charges and working capital movements reconciled exactly to reported operating cash flow in each year from 2021 to 2025. Margin-of-safety price: $12.00. This is well below the base value because the profit record is short, underwriting margins are thin, results depend on one partner whose agreement expires in 2027, and the company has floating-rate debt. That leaves a wide gap between the margin-of-safety price and what the shares appear to be worth.