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Root, Inc. (ROOT) Intrinsic Value

DCF-based fair value calculation with Bear, Base, and Bull scenarios

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Root, Inc. (ROOT)

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Intrinsic Value (DCF)

Current$72.11
→
Intrinsic$88.24
+22%
$67.61$88.24$127.36
Market implies 17% growth for 5 years
ROOT shows 22% potential upside using 25% growth — reasonable if fundamentals hold.
At $72, the market prices in continued high-teens cash flow growth (17%) — likely reflecting buybacks, margin stability, and ecosystem strength.
Range: Bear $68 → Bull $127. Current price implies expectations below the base case, but well above the bear case.
Discount ↓Growth →21%23%25%27%
8%$103$110$116$124
10%$79$84$88$93
12%$66$69$73$76
14%$58$60$63$66

Bull Case

  • Bull case ($127) offers 77% upside at 30% growth, 9% discount
  • 18% margin of safety vs. base case estimate
  • Market-implied growth (17%) ≤ historical CAGR (25%)

Bear Case

  • Bear case ($68) implies 6% downside at 20% growth, 12% discount
  • Using 25% growth — aggressive, watch for mean reversion
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5-Year Net Income Projection

Year 1$38.63M
Year 2$48.28M
Year 3$60.35M
Year 4$75.44M
Year 5$94.30M
Terminal$1.39B

📐 Model Inputs

Growth Rate25.0%5Y CAGR (cascade: 5Y→3Y→TTM)
Discount Rate10.0%WACC estimate
Terminal Growth3.0%Perpetuity rate
Base Net Income$30.90MTTM actual
Bear g×0.8, r+2%
Base Historical CAGR
Bull g×1.2, r−1.5%
ℹ️

DCF estimates based on historical growth rates extrapolated forward. Uses Net Income (FCF not meaningful for insurers). See FAQ below for full methodology.

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Frequently Asked Questions

Is ROOT stock undervalued or overvalued?
🟡 FAIRLY VALUED

ROOT trades at $72.11, within 10% of our $77.15 intrinsic value estimate. At 10.0% WACC and 25.0% FCF growth, the market is pricing in assumptions roughly aligned with the 5-year historical CAGR. The valuation range spans $58.73 (bear) to $104.27 (bull).

What is ROOT's intrinsic value?

Using a 5-year DCF model: Base FCF of $31M, projected at 25.0% 5Y CAGR (best of revenue, EPS, or FCF growth), discounted at 10.0% WACC, with 3.0% terminal growth. Terminal value calculated via Gordon Growth Model: TV = FCF₅ × (1+g) / (WACC−g). After deducting $-399M net debt and dividing by 0.02B shares: Bear $58.73 | Base $77.15 | Bull $104.27. Current price $72.11 implies +4% to base case.

How is ROOT's fair value calculated?

DCF Methodology:

① Project FCF years 1-5 using 25.0% growth derived from 5-year historical CAGR (best of revenue, EPS, or FCF growth, with 8% floor and 25% cap).

② Calculate terminal value at year 5 using perpetuity growth model with g=3.0%.

③ Discount all cash flows to PV using WACC=10.0%.

④ Sum PV of explicit period + PV of terminal value = Enterprise Value ($905M).

⑤ Subtract net debt, divide by shares outstanding.

Sensitivity analysis available above—adjust WACC ±2% or growth ±3% to stress-test the valuation. Implied EV/FCF multiple: 29.3x.