It’s not an exaggeration to say that zero-commission investing platform Robinhood Markets (NASDAQ:HOOD) has changed the investing world as we know it. Yet, the recent price action of HOOD stock seems to suggest that this is a company in decline.
Admittedly, Robinhood has had its share of problems. As you may recall, U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler declared that the practice of payment for order flow creates an “inherent conflict of interest.” In addition, Gensler revealed that a ban of this practice is “on the table.”
Meanwhile, some analysts have taken pessimistic stances on HOOD stock. For example, Bank of America analyst Craig Siegenthaler initiated coverage of Robinhood with an “underperform” rating, and J.P. Morgan analyst Kenneth Worthington issued a similar “underweight” rating on the stock.
Yet, not every Wall Street expert is bearish on Robinhood. Indeed, I managed to locate a bull among the pack, and his arguments might convince some skeptics to give Robinhood a chance to prove itself.
A Closer Look at HOOD Stock
Back in August, I made a bone-headed call that HOOD stock would go to $100. Suffice it to say, that prediction didn’t pan out in 2021.
Just a few days prior to that, on July 29, Robinhood priced its shares for the public at $38. The mood among investors was hopeful at that time. Reportedly, Cathie Wood’s ARK Invest purchased around 1.3 million Robinhood shares.
Apparently, the Reddit meme-sters helped carry HOOD stock to fresh highs right out of the gate. On the morning of Aug. 4, a Reuters headline declared, “Robinhood surges 65% on Reddit buzz.”
As the share price peaked at $85, wise stockholders took profits while the greediest traders were left holding the bag. With no mercy, the Robinhood share price plunged to $40 in October and then $20 in December.
If there’s any silver lining here, it’s that HOOD stock is probably a much better value at its current, post-plunge price point.
Perhaps the weak hands have been shaken out by now, and the stock can start on its long, difficult journey back to $50. (I won’t dare to mention $100 this time around.)
An Influx of New Investors
As I teased earlier, there’s actually a bullish voice among the throng of Robinhood’s critics on Wall Street.
JMP Securities Director of Financial Technology Research Devin Ryan has actually gone so far as to call HOOD stock “underappreciated in the market.”
Ryan did actually acknowledge Robinhood’s “soft third quarter.” On the other hand, he estimated that roughly 15 million new investors came to the market in 2021.
If that’s accurate, it’s a vast improvement over the approximately 10 million new investors from 2020.
In other words, the easing of Covid-19 pandemic lockdowns doesn’t seem to have diminished the influx of new investors. And of course, that’s bullish for Robinhood.
A Lot More to Come
Moreover, Ryan is preparing for Robinhood to expand its operations beyond stock, option and cryptocurrency trading in 2022.
Specifically, the analyst expects Robinhood to “be active in M&A [mergers and acquisitions].” Plus, Ryan would not be surprised… to see Robinhood do something” in the realm of non-fungible tokens (NFTs).
All in all, Ryan believes that there’s “a lot more to come here.” Personally, I’m looking forward to Robinhood’s 2022 launch of the platform’s beta version of its crypto wallet.
That being said, there are challenges that Robinhood will need to overcome during the next year.
Most prominently, the company should strive to achieve, or at least approach, profitability. During 2021’s third quarter, Robinhood increased its total net revenues by 35%. Yet, the company still posted a disappointing net earnings loss of $1.32 billion.
The Bottom Line
After making a $100 call for HOOD stock, I’ve learned a lesson about getting caught up in hype cycles.
A more realistic price target for 2022 would be $50. After that’s achieved, we can talk about $100 and beyond.
In the meantime, there will be plenty of skeptics and possibly a handful of optimists. Evidently, Robinhood will have a lot on its plate during the next 12 months – and hopefully, profitability will be a priority.
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.