Proponents of Robinhood Markets (NASDAQ:HOOD) like to refer to its asset trading app as the vanguard of next-generation investing solutions. However, it was old money that ultimately came to its rescue. On Monday, Goldman Sachs analyst Will Nance upgraded his stance on HOOD stock to “neutral” from “sell.” Primarily, Nance declared that Robinhood was approaching its cash value based on its current valuation.
In a research note, the analyst wrote, “We expect that HOOD’s net interest revenues derived from balance sheet cash, margin loans, bank sweeps, and client payables will benefit from incremental rate hikes.” All other things being equal, financial firms tend to benefit from a rising interest-rate environment because of higher profitability for loan products. In Robinhood’s case, the platform can charge its users more for acquiring stocks on margin.
Not surprisingly, HOOD stock responded well to the news, jumping more than 4% against its Monday opener in the late morning hours. Naturally, this dynamic provides fuel for speculators, although prospective participants should be cautious.
Not All Great News for HOOD Stock
Since the analyst upgrade comes against the framework of a more than 50% loss on a year-to-date (YTD) basis, optimistic equity buyers choose to see the positives in HOOD stock. Nevertheless, it’s important not to get too carried away with the latest disclosure.
First, the “neutral” rating itself is hardly cause for exuberance. As Nance pointed out, the fundamentals undergirding HOOD stock “are still very weak.” It’s also worth mentioning the technology-centric Nasdaq index is still mired in correction territory on a YTD basis.
Second, Nance actually lowered his price target for HOOD stock to $9.50 from $11.50. To be fair, at the time-of-writing price of $8.33, hitting the forecast would translate to a 14% gain. Nevertheless, that’s plenty of risk for gains that are not exactly earthshattering. Keep in mind that Robinhood does not pay dividends.
Third, HOOD stock features a split-analyst decision, with only 33% of covering experts rating it a “buy.” Additionally, Goldman Sachs cut its rating for Coinbase Global (NASDAQ:COIN) to “sell” from “neutral.” Given the similarities between the two platforms, adventures in Robinhood warrant caution.
Surviving the Malaise
Despite the obvious risks to HOOD stock, at least some speculators will eyeball an opportunity. While Nance’s upgrade isn’t the most confidence-inspiring endorsement, the equities sector arguably represents one of the few places to grow your investment dollars.
With cryptocurrencies suffering catastrophic losses, many investors are shying away from the sector. On the other hand, real estate prices – while demonstrating signs of a slowdown – are still flying in the stratosphere relative to historical norms.
Therefore, the equities sector, with its myriad of subsegments, offers greater access and flexibility. HOOD stock remains a challenging wager, but in the near term, the circumstances may be favorable for speculative buyers.
On the date of publication, Josh Enomoto 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.
