Citron Research's Left says auto insurer Root is misunderstood

[March 26, 2021]  By Svea Herbst-Bayliss

BOSTON (Reuters) - Auto insurer Root Inc, whose stock price tumbled more than 50% since its public listing late last year, is a bargain that is currently misunderstood by investors and should be trading higher, Andrew Left, founder of Citron Research, said on Thursday.

"We believe Root is a misunderstood short," Left said, calling the six-year-old company a "disruptive tech company" whose shares should not be trading below their IPO price of $27.

Root's stock gained nearly 5% on Thursday to finish trading at $12.87. It gained more than 4% in after hours trading.

The company relies on smartphone data to keep tabs on drivers' habits which it uses to price risk, leaving it with a usage-based insurance (UBI) score that "is almost ten times more predictive than an industry leading UBI provider according (international actuarial and consulting firm) Milliman," Root wrote in its filing last year.

Still, Wall Street has turned its back on the company as short interest in the company stood at roughly 10.9 million shares on March 15, according to Refinitiv data. It currently ranks among the 10 most widely shorted U.S. companies.

Left, who built his reputation and fortune by publishing reports on stocks that he thought should be trading lower, changed course earlier this year and said he would no longer publish short-seller reports in the wake the trading frenzy around video game retailer GameStop.

In January an army of retail investors took on Left and other investors who were short GameStop and pushed the stock significantly higher, forcing many like Left to rethink their positions. Left said at the time that the skills he used in putting together his short reports could also work with reports arguing that stocks should be higher.

In a presentation aired on Twitter on Thursday, Left said he was not involved in GameStop or Bitcoin at this time but that short selling is not "dead."

Turning back to Root, he noted that blue-chip technology investors like Coatue Management, Dragoneer Investment Group and Silver Lake Partners, who are currently listed as investors likely were not fooled by Root.

Left noted that last year was a tough year to go public for an auto insurance company but that it has "great management that knows insurance and technology." But he added that Root has not done a good job in telling its story to Wall Street, something that can be fixed, however.

(Reporting by Svea Herbst-Bayliss with additional reporting by Noel Randewich; Editing by Marguerita Choy)

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