Root Inc (NASDAQ: ROOT) rallied a whopping 150% after reporting its first-ever net income profitability on the back of massive growth in quarterly revenue on Wednesday.
“This is obviously a great milestone for Root. It’s important to note that we recognise this as a milestone, not the finish line,” the auto insurance firm told investors on the earnings call last night.
Root attributed strength in its third financial quarter partly to lower expenses.
The Ohio based company refinanced and reduced its debt to trim interest by some 50% as well in Q3.
Root stock topped the $100 mark this morning versus just north of $7.0 only in early February.
Root stock jumps on market-beating Q3 results
Root earned $1.35 a share in its recently concluded quarter – significantly better than $3.16 per share it lost in the same quarter last year and 93 cents a share that analysts had forecast.
A 165% annualised growth pushed the company’s revenue to $306 million in Q3 while experts were at $273 million only.
Root now plans on using profits to reinvest in its “growth engines in both direct/partnerships and indirect channels.”
It will continue to test new areas of the marketing funnel in the coming quarters as well, Alex Timm – the company’s chief executive said last night.
Other notable figures in the earnings release include a 57% year-on-year increase in policies in force, a 48% increase in gross premiums, and an 89% increase in gross combined ratio.
The first US licensed insurance carrier ended the quarter with $675 million in cash and cash equivalents. But Root stock does not currently pay a dividend and, therefore, is not a suitable pick for income investors.
Why else are Root shares rallying today?
Root share price is gaining at writing also because the management succeeded in refinancing its term loan facility with the NY headquartered BlackRock.
The move, as per the insurance technology company, will improve its financial flexibility as well as the cost of capital to help “lower interest expense on a run-rate basis by roughly 50%, which will serve to further accelerate our profitability trajectory.”
Root continues to have $150 million in available capital under the amended term loan, as per its letter to shareholders on Thursday.
Wall Street currently has a consensus “overweight” rating on Root stock.
But analysts have an average price target of $71 on the insurance firm – well below the price at which it is trading following the earnings release on Thursday.
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