Root and Equitable Holdings: Undervalued Resilience in a Turbulent Trade Climate

The recent 2.8% and 2.7% declines in Root (NASDAQ:ROOT) and Equitable Holdings (NYSE:EQH) stocks, according to a FinancialContent article, have sparked debate about their valuation potential amid broader market jitters over President Trump's proposed tariff hikes on Chinese imports. While the trade war rhetoric has cast a shadow over sectors reliant on global supply chains, a closer look at these two financial services firms reveals contrasting fundamentals and valuation dynamics that suggest overlooked opportunities for investors willing to look beyond short-term volatility.

Root: A Tale of Earnings Resilience and Strategic Debt Restructuring

Root's Q3 2025 performance defied expectations, delivering a $1.35 earnings-per-share (EPS) profit-far exceeding forecasts for a loss-and doubling year-over-year revenue, according to a Yahoo Finance article. This turnaround was fueled by a strategic term loan restructuring with BlackRock, which reduced Root's debt burden and injected $150 million in liquidity. The company's debt-to-equity (D/E) ratio of 0.55, per Root statistics, is well below the financial services industry average of 9.21, according to a MacroTrends chart, and underscores its financial prudence.

Historical context, however, reveals nuance. A backtest of Root's stock performance following earnings beats since 2022 shows mixed results: while three such events occurred, none produced statistically significant returns over a 30-day horizon, with price reactions oscillating between weakness and rebounds, according to a ROOT backtest. This suggests that while Root's Q3 outperformance is encouraging, past earnings surprises alone may not reliably drive sustained returns for the stock.

Despite a forward P/E ratio of 78.46 (per Root statistics), which appears lofty at first glance, Root's valuation must be contextualized. The firm's enterprise value-to-EBITDA (EV/EBITDA) ratio of 6.41 is significantly lower than the industry average of 11.94, according to an Equidam report, suggesting undervaluation relative to cash flow generation. Moreover, Root's operational milestones-15 million app downloads and 33 billion miles of driving data analyzed, as reported by Yahoo Finance-highlight its disruptive potential in the insurance sector, where data science is redefining risk assessment. Analysts remain cautiously optimistic, noting that while 2026 earnings per share are projected to decline per the Yahoo Finance article, the company's technological edge and debt discipline position it to outperform in a cyclical recovery.

Equitable Holdings: Growth Amidst High Leverage

Equitable Holdings, by contrast, faces a more complex valuation picture. Its 2024 revenue of $12.76 billion-a 21.33% year-over-year increase-was reported in a Nasdaq article, and its $1.23 billion in earnings also came from that coverage, reflecting strong performance in its Individual Retirement segment. However, the firm's D/E ratio of 20.12, per FinanceCharts data, is alarmingly high, even for a sector accustomed to leverage. This contrasts sharply with the industry average of 9.21, raising questions about its ability to weather prolonged economic stress.

Yet Equitable's trailing P/E ratio of 40.24 and EV/EBITDA of 4.24 (both from FinanceCharts data) suggest a compelling value proposition. While its P/E is elevated, the EV/EBITDA is a fraction of the industry average noted above, indicating that the market is discounting its earnings potential due to leverage concerns rather than operational flaws. Analysts' "Buy" consensus and $64.45 12-month price target-reported by Nasdaq-imply a 31.8% upside and reflect confidence in its ability to manage debt while capitalizing on its retirement services expertise. The firm's upcoming Q3 2025 results, scheduled for October 29, will be critical in validating this optimism.

Industry Context and Strategic Implications

The financial services sector's average D/E ratio of 9.21 and P/E of 13.54–13.95 provide a useful benchmark. Root's conservative leverage and Equitable's low EV/EBITDA both position them as potential bargains, albeit with distinct risk profiles. Root's focus on technology-driven insurance and disciplined debt management offers a hedge against trade war disruptions, while Equitable's high leverage demands careful monitoring of interest rate trends and credit spreads.

Conclusion: Navigating the Trade War's Shadow

The recent selloff in Root and Equitable Holdings reflects broader macroeconomic anxieties rather than intrinsic weaknesses in their business models. For Root, the combination of strong earnings, low leverage, and technological innovation creates a compelling case for long-term investors, though historical data on earnings surprises suggests caution in overestimating short-term momentum. Equitable, while riskier due to its high D/E ratio, offers a discounted valuation that could reward those who bet on its ability to delever and sustain growth. In a market increasingly preoccupied with trade tensions, these two firms exemplify the opportunities that arise when volatility separates fundamentals from sentiment.