Some folks might say that zero-commission investing platform Robinhood Markets (NASDAQ:HOOD) is a symbol of modern trading in the 2020s. In light of this, HOOD stock holders are effectively investing in a revolutionary concept: a broker for the masses, not just for the experts.
It’s exciting to witness the democratization of investing, but not everyone’s enthusiastic about Robinhood. Back in June, Securities and Exchange Commission (SEC) Chair Gary Gensler hinted that he might crack down on Robinhood due to the company’s payment-for-order-flow business model.
Consequently, I warned investors to adopt a cautious, wait-and-see stance with HOOD stock. Hopefully some folks heeded my warning, as the stock price has tumbled in recent months.
Besides, as we’ll see, there are big-bank analysts who are notably wary of Robinhood at the moment. Still, a cryptocurrency-related acquisition could help to bolster the shareholders’ confidence while enhancing Robinhood’s value proposition.
A Closer Look at HOOD Stock
Before we peer into Robinhood’s precarious future, let’s look back upon its equally unsettling past. On July 29, Robinhood priced its shares for the public at $38, at the lower end of the expected range. HOOD stock fell 8% on that first day of trading, but soon shot up to a high of $85 in early August.
It was all downhill from there, unfortunately. As the hype phase wore off, the stock price slid below $40 by the end of October.
The situation only went from bad to worse after that, as the share price was cut in half yet again. By Dec. 20, believe it or not, HOOD stock was trading near $18.
When will the carnage end? It’s impossible to know for certain, though it will be a very positive sign if the buyers can regain $25 and then $30, so keep an eye on those technical levels.
The Perfect Storm Has Passed
Before we discuss a potentially game-changing acquisition, it’s not a bad idea to get Wall Street’s take on HOOD stock. Sorry to say it, but Bank of America analyst Craig Siegenthaler is decidedly cautious on Robinhood right now.
Siegenthaler initiated coverage of Robinhood with an “underperform” rating and a $22 price target. So evidently, the Bank of America analyst isn’t expecting a sustained return to the $25 and $30 technical checkpoints.
According to Siegenthaler, “the benefits from the perfect storm created by the pandemic are now reversing at the same time its main revenue driver (PFOF—payment for order flow) is being investigated by the SEC.” With the regulatory issues in mind, Siegenthaler expects that Robinhood “may not turn a profit for several years.”
J.P. Morgan analyst Kenneth Worthington might be even less optimistic than Siegenthaler. Worthington slapped an “underweight” rating on HOOD stock, along with a $17 price target. Among Worthington’s concerns are Robinhood’s fundamentals continuing “to not live up to expectations.”
Building a World-Class Platform
Even as not everyone is enamored with Robinhood, the company is nonetheless moving forward with an intriguing acquisition.
Just recently, Robinhood announced that it will acquire cross-exchange cryptocurrency trading platform Cove Markets.
It’s reportedly been confirmed that Cove Markets’ co-founders, Scott Knudsen and Victor Glava, along with the current Cove team, will join Robinhood’s cryptocurrency-division team.
“With the Cove Markets team on board, we’ll continue building a world-class crypto trading platform,” Robinhood asserted. He added that, “The team will also help ensure our customers get the best trade execution in the crypto market.”
Whether Robinhood actually offers, or will offer, the “best trade execution in the crypto market” is certainly debatable.
In any case, hopefully the Cove Markets acquisition will bolster Robinhood’s standing as a new-generation cryptocurrency-trading platform.
The Bottom Line
Let’s not beat around the bush: right now, HOOD stock holders need all the help they can get. The investing community doesn’t seem to be particularly optimistic about Robinhood’s future prospects as a business venture.
Indeed, as Siegenthaler put it, “the benefits from the perfect storm created by the pandemic are now reversing” for Robinhood and its stakeholders.
Still, at least the Cove Markets offers a glimmer of hope for a brighter future for Robinhood. Just don’t load the boat on HOOD stock, as the SEC could clamp down on Robinhood and create long-lasting problems.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.
