Robinhood Might Be a Bargain if It Can Remain Free Cash Flow Positive

  • Robinhood (HOOD) has fallen drastically from its post-IPO close of $34.82 less than a year ago. As of May 17, it was down to $10.06, off 71.1%.
  • Despite a recent 7.6% stake by the CEO of FTX, a crypto trading platform, Robinhood could be in for a further drop if it can’t maintain positive free cash flow.
  • Investors might find this a bargain price, but should be prepared to average down further if HOOD stock falls.
hood stock: An image of a wallet with a coin in it, a cellphone on top depicting Robinhood logo

Source: salarko/Shutterstock

Robinhood Markets (NASDAQ:HOOD) has taken a huge tumble since peaking at over $70 in early Aug. 2021. As of May 17, it was down to $10.06. But even since the end of last year, when it closed at $17.76, HOOD stock is down more than 43% year-to-date (YTD).

This is a pretty miserable performance. It reflects the general bear market conditions in the stock market and in the cryptocurrency marketplace.

HOOD Robinhood Markets $10.27

HOOD Stock and Its Q1 Results

Most crypto prices are down similar amounts, including large cryptos like Bitcoin (BTC-USD) and Ethereum (ETH-USD). These two are off 36.1% and 44.7% YTD, respectively.

Moreover, the volume of crypto trading has taken a huge dive as well. This is what drives revenue at Robinhood, probably more so than the price levels of major cryptos.

For example, on April 28, Robinhood reported its first-quarter results. Its Q1 revenue was down 43% to $299 million, versus $522 million in Q1 2021. In fact, its transaction-based revenue was down 48% year-over-year (YOY). That lower volume of crypto trading essentially leads to lower revenue.

Analysts surveyed by Refinitiv forecast that in 2022, Robinhood’s revenue will fall by 16% from $1.82 billion to $1.52 billion. But given its drop so far in Q1 of 48%, it’s likely that without a major rebound in crypto markets before year-end, analysts will have to dramatically lower their sales forecasts.

Where This Leaves HOOD Stock

Right now Robinhood has a fairly high price-to-sales (P/S) metric since its market capitalization is $8.41 billion. So, if we believe that analysts’ forecast of $1.52 billion, that puts it on a forward P/S multiple of 5.5 times.

However, that implies revenue falls just 16% this year compared to last year. Let’s say that revenue drops by one-third to $1.213 billion. That puts HOOD stock on a P/S multiple of 6.9x, which is higher than its present 5.5x P/S multiple.

This is a very high multiple for a company that is still not only losing money, but has declining revenue.

One positive note is that Robinhood turned free cash flow (FCF) positive this quarter after two FCF negative quarters prior to this. It produced about $416 million in FCF for Q1 based on its latest cash flow statement.

However, that was greater than its revenue of $299 million. This is not likely sustainable, as most of the extra cash flow was due to receivables getting paid to the company — a one-time event.

What to Do With Robinhood Stock

Investors in HOOD stock may want to watch carefully how its Q2 and Q3 revenue turns out. They should also carefully monitor the cash flow statements to make sure it remains cash-flow positive.

So be careful with Robinhood. It could be a bargain here, given how much it has fallen. Moreover, it is still cash flow positive, despite the GAAP net income losses.

But on the other hand, its lack of profitability and high P/S metrics make it still vulnerable to further declines. In that case, long-term investors may have to average down to lower their costs in HOOD stock.

On the date of publication, Mark Hake did not hold (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 Publishing Guidelines.

Mark Hake writes about personal finance on, and

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