We recently compiled a list of the 12 Best Performing Small Cap Stocks So Far in 2025. In this article, we are going to take a look at where Root, Inc. (NASDAQ:ROOT) stands against the other small cap stocks.
On February 14, Stacey Sears, portfolio manager at Emerald Advisors, joined ‘Squawk Box’ on CNBC to share her insights on the market’s performance in early February. She thinks that small-cap earnings data is encouraging. Despite various news events, which include inflation data and tariff announcements, she thinks that the market has handled the developments well. Michael Hartnett of Bank of America suggests that the recent hot CPI could be a blessing in disguise as it might lead President Trump to adopt more cautious policies regarding tariffs and immigration. But Sears emphasized that her team is not overly concerned about inflation levels at present. They believe that while there has been an uptick in some inflation indicators like PPI elements, these don’t significantly impact Personal Consumption Expenditures (PCE), which is a focus for Fed Chair Jerome Powell.
In terms of positioning within this environment, Sears discussed how small-cap stocks are showing encouraging signs after being in an earnings recession for much of the past two years. The fourth quarter marked a turn with positive year-over-year earnings growth exceeding expectations, tracking at high single digits instead of the anticipated 2% growth. This outperformance spans multiple sectors including financials, healthcare, and technology. She was questioned about small caps being less appealing during periods of high inflation and interest rates due to their volatility compared to larger cap stocks like those in mega-cap indices reaching peak concentration levels. Sears pointed out that small caps are currently undervalued relative to their historical norms within equity markets. She believes structural changes are unlikely and anticipates recovery as domestic economic strength continues with GDP tracking positively according to Atlanta Fed data. Moreover, borrowing costs have decreased recently by about 100 basis points based on secure overnight financing rates (SOFR), which should alleviate some headwinds affecting earnings growth for small caps.
Given these factors combined with favorable valuations today, Sears sees opportunities emerging within small caps.
Methodology
We used the Finviz stock screener to compile a list of the best-performing stocks that were trading between $300 million and $2 billion. We then picked the top 12 stocks with the highest year-to-date gains, as of February 17. The stocks are ranked in ascending order of their year-to-date performance. We have also added the hedge fund sentiment for each stock which was sourced from Insider Monkey’s database.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
An experienced insurance agent explaining the benefits of an insurance product to a customer.
Root, Inc. (NASDAQ:ROOT)
Number of Hedge Fund Holders: 16
Year-to-Date Performance as of February 17: 78.18%
Root, Inc. (NASDAQ:ROOT) offers auto, home, and renters insurance in the US. It operates through a direct-to-consumer model, primarily via mobile app and website. It also utilizes digital, media, referral, and agency distribution channels.
The company achieved profitability in Q3 2024, which was driven by strong underwriting and efficient expense management. It reported $23 million in net income. Its data-driven approach led to an industry-leading 57% gross loss ratio, which allowed it to consider rate reductions in certain markets. The company’s partnerships channel also doubled year-over-year. These factors together fueled a surge in its stock price.
In mid-February, its stock reached a new 52-week high, outperforming the finance sector and insurance industry. Root, Inc. (NASDAQ:ROOT) is now focused on continued growth through geographic expansion and reinvestment of profits into marketing and new partnerships. It’s seeing positive trends in customer retention and plans to maintain its disciplined approach to underwriting and innovation.
Overall ROOT ranks 9th on our list of the best performing small cap stocks so far in 2025. While we acknowledge the growth potential of ROOT as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ROOT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap.
Disclosure: None. This article is originally published at Insider Monkey.