Buy Robinhood Stock Below $11, But Only If You’re Prepared to Lose It All

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By the time I got to write about Robinhood Markets (NASDAQ:HOOD) for the first time in August 2021, HOOD stock had already fallen 42% from its all-time high of $85 hit on Aug. 4.

Robinhood stocks: app logo seen on smartphone on US dollar banknotes

Source: mundissima / Shutterstock.com

I was convinced that it wasn’t nearly as good a buy as other stocks offering commission-free and fractional share purchasing.

Today, only my second time covering Robinhood, it came extremely close to a single-digit price.

Which raises the question: At what point does HOOD stock become investable? Maybe never. Here’s why.

HOOD Stock Has a Lot of Competition

New investors looking to sharpen their teeth with an easy-to-use investing app have lots of options these days other than Robinhood. I said as much in my August 2021 commentary about the company:

“If crypto is your thing, I recommend you consider buying Coinbase (NASDAQ:COIN) instead of Robinhood. It’s the pure-play in this twosome.

“And if you want to own a small slice of a company offering commission-free, fractional share ownership, I’d consider Square (NYSE:SQ) or SoFi Technologies (NASDAQ:SOFI) as better alternatives.”

My opinion hasn’t changed on this front. New investors can easily buy stock through Cash App, SoFi Invest, and more. Even Interactive Brokers (NASDAQ:IBKR), known for its hard-core traders, has commission-free and fractional share purchases.

Robinhood isn’t the leader it once was. As a result, its business might have suffered over the past year.

The Merits of Owning HOOD Stock

Last August, InvestorPlace’s Nicolas Chahine discussed the long-term merits of owning Robinhood. He specifically focused on the company’s loyal fan base.

“They have a loyal user base that perhaps is just getting started. They recently reported 18 million accounts with a balance. That’s up 40% from just three months prior. With time they can learn to adjust strategies and hone skills. While management hasn’t touted the explosive growth yet, the street will figure it out later.”

In late January, Robinhood reported its Q4 2021 and year-end results. Chahine referred to the 18 million funded accounts Robinhood had as of March 31, 2021, three months before it went public in July. It had 12.5 million at the end of 2020 and 5.1 million in 2019.

Robinhood’s net cumulative funded accounts since it’s gone public have been as follows:

Q2 2021 – 22.5 million

Q3 2021 – 22.4 million

Q4 2021 – 22.7 million

So, from March 31, 2021, to Dec. 31, 2021, it added 4.7 million net cumulative funded accounts, most of those additions in the second quarter of 2021. Over the second half of 2021, it added just 200,000 accounts.

Not only did its funded accounts move sideways or lower in 2021’s second half, so too did its monthly active users (MAUs) and average revenue per user (ARPU).

It finished Q2 2021 with 21.3 million MAUs and an ARPU of $112. It ended Q4 2021 with 17.3 million MAUs and ARPU of $64, down 18.8% and 42.9%, respectively.

As a result, Robinhood’s outlook for the first quarter of 2022 was a 35% drop in year-over-year revenue to $340 million, $108 million less than the analyst estimate for Q1 2022.

The “Glass Is Half Full” Investor Should Buy

If you’re an aggressive investor, the fact that Robinhood lost $3.7 billion in 2021 should not dissuade you from making a speculative bet on HOOD at or below $10.

Why?

Robinhood went public at $38 a share on July 28, 2021. Its IPO put the company’s market capitalization at $32 billion. While its business has stalled compared to the growth it presented in its IPO prospectus, it’s hard to ignore the fact the company spent $1.23 billion on technology and development in 2021, 472% more than a year earlier.

Some of that investment has got to pay off in 2022 and beyond. Doesn’t it? Unfortunately, life doesn’t always give you what you want. As I said earlier, Robinhood faces stiff competition. Its ultimate success is not a slam dunk.

So, if you can afford to lose 100% of your investment, HOOD is a speculative buy under $11. On the other hand, if you’re risk-averse, you can forget about buying Robinhood stock until it can prove the growth slowdown was only temporary.

On the date of publication, Will Ashworth 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.


Article printed from InvestorPlace Media, https://investorplace.com/2022/03/at-what-price-does-robinhood-and-hood-stock-become-investable/.

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