Citron Deems ROOT "Misunderstood," Option Bulls Latch On

Citron's founder said Root stock is severely undervalued

Deputy Editor
Mar 26, 2021 at 10:33 AM
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The shares of Root Inc (NASDAQ:ROOT) are up 12.4% to trade at $14.46 this morning, after founder of Citron Research Andrew Left said the auto insurance stock is severely undervalued. Left went as far as to call ROOT "a misunderstood short," adding that it should not be trading so far below its initial public offering (IPO) price of $27. 

Indeed, it has been a rocky road for ROOT since the stock went public back in late October. The security finished off its first day on the Nasdaq with a close of $27, but hasn't been able to topple this level since then. It looks like shares may have found a bottom near the $11 level, though. In fact, in the past week, Root stock is up over 18%, and just reclaimed its 20-day moving average for the first time since mid-February. 

Left wasn't lying about the heavy short interest surrounding the stock -- short sellers have been building their positions since January, and now short interest stands at its highest level on record. The 10.92 million shares sold short now make up an eyebrow-raising 52.4% of Root stock's available float, and it would take exactly a week to cover these bearish bets at the equity's average daily pace of trading. 

Sentiment from the brokerage bunch is tepid at best. Of the 13 in coverage, eight call it a "hold" and one says "sell." The 12-month consensus price target of $20.08, on the other hand, is a 39.9% premium to current levels. 

Today's options activity has been overwhelmingly bullish, though. So far, 19,000 calls and 1,734 puts have crossed the tape -- 11 times the intraday average. The April 10 call is the most popular, followed by the 12.50 and 17.50 calls in the same monthly series. 

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