What is ROOT's Intrinsic value?

Root Inc (ROOT) Intrinsic Value Analysis

Executive Summary

As of June 18, 2025, Root Inc's estimated intrinsic value ranges from $39.46 to $190.86 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Dividend Discount Model (Multi-Stage) $190.86 +41.3%
Dividend Discount Model (Stable) $39.46 -70.8%

Is Root Inc (ROOT) undervalued or overvalued?

With the current market price at $135.11, the stock appears to be fairly valued.

Understanding Intrinsic Value

Intrinsic value represents the "true" worth of a company based on its fundamentals rather than market sentiment. We've employed multiple methodologies to triangulate Root Inc's intrinsic value, including:

  1. Dividend Discount Model (DDM): Values the company based on expected future dividend payments

Weighted Average Cost of Capital (WACC)

The cost of capital is a critical factor in valuation models, representing the required return for investors.

WACC Component Low High
Long-term bond rate 3.9% 4.4%
Equity market risk premium 4.6% 5.6%
Adjusted beta 0.58 0.62
Cost of equity 6.6% 8.3%
Cost of debt 5.0% 5.0%
Tax rate 26.2% 27.0%
Debt/Equity ratio 0.09 0.09
After-tax WACC 6.3% 8.0%

Valuation Methods

2. Dividend Discount Model (DDM)

The DDM values a company based on its expected future dividend payments. We used two approaches:

Multi-Stage DDM:

  • Current payout ratio: 0.0%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 7.4%
  • Long-term growth rate: 0.5%
  • Fair value: $190.86 (41.3% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 8.3% (Low) to 6.6% (High)
  • Long-term growth rate: 0.0% (Low) to 1.0% (High)
  • Fair value range: $27 to $52
  • Selected fair value: $39.46 (-70.8% from current price)

Key Financial Metrics

Metric Value
Market Capitalization $2077M
Enterprise Value $1664M
Trailing P/E 42.12
Forward P/E 39.77
Trailing EV/EBITDA 0.00
Current Dividend Yield 0.00%
Dividend Growth Rate (5Y) 0.00%
Debt-to-Equity Ratio 0.09

Investment Decision Framework

To determine the most reliable intrinsic value estimate, we weigh each valuation method based on:

  1. Forecast Certainty: DCF methods rely on long-term projections, while earnings power value focuses on current normalized earnings
  2. Business Model Alignment: Dividend models are more appropriate for mature companies with established dividend policies
  3. Historical Accuracy: How well each method has predicted fair value historically

Valuation Weight Matrix

Valuation Method Weight Weighted Value
Dividend Discount Model (Multi-Stage) 57% $38.17
Dividend Discount Model (Stable) 43% $5.92
Weighted Average 100% $125.97

Investment Conclusion

Based on our comprehensive valuation analysis, Root Inc's weighted average intrinsic value is $125.97, which is approximately 6.8% below the current market price of $135.11.

Key investment considerations:

  • Conservative capital structure (Debt/Equity of 0.09)

Given these factors, we believe Root Inc is currently fairly valued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.