What Happened?
Shares of digital auto insurance company Root (NASDAQ: ROOT) fell 10.2% in the morning session after its third-quarter earnings report showed a net loss, which overshadowed beats on revenue and earnings per share (EPS). The company initially saw its stock rise after it posted revenue of $387.8 million and an EPS of -$0.35, both of which were better than analysts had predicted. However, the positive sentiment did not last as investors looked closer at the company's operational performance. Root's combined ratio, a key measure of an insurer's profitability from its daily operations, came in at 102%. A ratio above 100% indicates an underwriting loss, meaning the company paid out more in claims and expenses than it earned in premiums. This result was also 11 percentage points worse than in the same quarter last year, suggesting deteriorating profitability. The stock's subsequent drop suggested investors were more focused on this underlying weakness than the headline beats.
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What Is The Market Telling Us
Root’s shares are extremely volatile and have had 60 moves greater than 5% over the last year. But moves this big are rare even for Root and indicate this news significantly impacted the market’s perception of the business.
The previous big move we wrote about was 27 days ago when the stock dropped 2.8% on the news that President Trump announced plans for a massive increase in tariffs on Chinese imports. The sudden announcement rattled investors, breaking a months-long period of calm and sending the S&P 500, Dow Jones, and Nasdaq indexes tumbling. Tariffs are essentially taxes on imported goods, and the prospect of a significant increase raises investor concerns about a potential trade war. Such measures could lead to higher costs for U.S. companies that rely on Chinese components or materials, potentially hurting their profits and leading to higher prices for consumers. The move introduces significant uncertainty into the economic outlook.
Root is up 7.7% since the beginning of the year, but at $79.08 per share, it is still trading 55.5% below its 52-week high of $177.69 from March 2025. Investors who bought $1,000 worth of Root’s shares 5 years ago would now be looking at an investment worth $193.20.
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