Robinhood Markets: A High-Growth Stock with a Volatile Past
Investing in Robinhood Markets (NASDAQ: HOOD) has been a wild ride. Since its IPO in 2021, the stock has experienced extreme fluctuations, peaking at $70 and plummeting to below $7. Despite this volatility, the company has made significant strides in innovating its products and designing a user-friendly trading platform.
Disrupting the Brokerage Industry
Robinhood deserves credit for shaking up the brokerage industry. By offering commission-free trades, it forced other brokerages to follow suit. Although the company has faced criticism for its order flow payments and handling of the GameStop short squeeze, it has continued to evolve into a platform where users can take their finances seriously.
Growing Customer Base and Revenue
In Q3, Robinhood’s customer base grew by 1 million year over year, with a 76% jump in assets under custody (AUC) as users funded their retirement accounts. This momentum has contributed to the company’s GAAP profitability, with $525 million in net income over the past four quarters on $2.4 billion in revenue.
Underlying Financials: A Cause for Concern
However, the underlying financials may not be as impressive as they seem. Retirement accounts are necessary for growth, but they aren’t as lucrative as margin loans and options contracts. These speculative activities account for 39.5% of Robinhood’s total revenue and tend to dry up during market downturns.
Cyclical Business and Valuation
Robinhood’s business is cyclical and will fluctuate with the broader market until it grows big enough in other areas. The company is trying to generate new, more stable revenue from its credit card and subscription service. Investors should weigh this when looking at the stock, which currently trades at a forward P/E ratio of 29.
What’s Next for Robinhood?
Given the stock’s epic rally and hefty valuation, investors should consider it a hold and wait for a pullback. If you’re investing for the long term, consider a dollar-cost averaging strategy to smooth out the volatility. As Robinhood grows its newer revenue streams, the business and stock price may stabilize.
Don’t Miss Out on the Next Big Opportunity
If you’re worried about missing out on the next successful stock, consider our expert team’s “Double Down” stock recommendations. These rare alerts identify companies that are about to pop, and the numbers speak for themselves. Don’t miss your chance to invest before it’s too late.
Leave a Reply