🔎ROOT 1Q26: Time to load the boat.
The company posted fantastic results. The business is reaccelerating and they earned a record profit. It seems like the insurance cycle is turning sweet again.
TLDR Summary
Root posted strong 1Q26 results. They achieved a record profit with record margins, driven by a record low loss ratio and a record low operating expense ratio. Underwriting growth is reaccelerating. Management seems to be gaining confidence that the industry cycle is turning sweet again.
The structural growth story remains fully intact. And now, the stock might be on the cusp on receiving cyclical support again. Consensus opinion on insurance is poor. Institutional investors are afraid of rising competition and another inflation wave. Both risks are overblown. Consumer sentiment in the US will improve. And no trade war or actual war has so far caused a new inflation wave in the categories relevant for Root.
Lemonade is still hopelessly overvalued. There is a ton of dumb money engaged in this space. However, I am not so afraid anymore that this is spilling over to Root. The current valuation is driven by fundamentals in line with the industry.
Related content from Fallacy Alarm
Setting the stage for this quarter
In my 4Q25 earnings review, I appreciated Root’s continued resilient performance against weak industry trends. However, while I considered the investment case fully intact for the long-term, I feared that the deceleration of the company’s topline growth might weigh on sentiment in the near-term, esp. since many insurtech investors will likely have to capitulate on the fraudulent competitor Lemonade soon. Their incoming capitulation could hurt Root as well.
Both stocks have essentially gone nowhere for the last three months. Let’s see how the latest earnings keep shaping the story. I don’t want to waste too much of your and my time on Lemonade. But since both companies are playing on the same field, I believe it’s relevant to keep an eye on Lemonade as well.
