Despite some recent gains, Robinhood Markets (NASDAQ:HOOD) stock remains a risky bet and investors should steer clear of the stock.
Right now, HOOD stock looks to be on the comeback trail. Year to date, the share price is up 39%. Robinhood’s stock has been rising due to increased trading volumes and record-breaking cryptocurrency prices. But HOOD stock is 70% lower than the record peak it reached in August 2021 shortly after the company went public.
A Shifting Market and HOOD Stock
HOOD stock was given a big boost in February of this year when the online trading app posted a quarterly profit. Robinhood announced that it swung to a profit in the fourth quarter of 2023 on better-than-expected revenues.
The company reported a profit of three cents a share, beating Wall Street forecasts for a penny per share loss. The company’s Q4 revenue totaled $471 million, topping analyst estimates of $455 million. A year earlier, Robinhood lost 19 cents a share on revenue of $380 million.
While the Q4 print was a success, it was only six months ago that HOOD stock plunged 14% after the digital brokerage reported weaker-than-expected third-quarter financial results amid a decline in trading activity on its platform.
The problem facing Robinhood Markets now is that stocks and cryptocurrencies are again seeing their prices slump. In the last month, the benchmark S&P 500 index has dipped 3%, while the technology-laden Nasdaq composite index has declined 5%.
At the same time, crypto prices have faltered. After touching an all-time high of just under $74,000 on March 14, Bitcoin’s price has pulled back 13% to currently trade at $64,300.
Some analysts are forecasting a full blown 10% market correction for stocks, while others see the price of cryptocurrencies continuing to slide as well. This scenario does not bode well for Robinhood Markets, whose fortunes rise and fall as retail investors trade on its platform.
Diversification Strategy
Acknowledging that its fortunes are tied to the activities of retail investors, Robinhood Markets has been trying to diversify its business.
In March of this year, the company launched a new credit card in the U.S. as it expands beyond its core business of online stock trading.
In media interviews, management said that their goal is to become a financial services company and move away from being solely an online brokerage that attracts people with commission-free trades.
For now, the Robinhood Gold Card is being offered exclusively to members of the company’s subscription-based trading program. The credit card has no annual cost or foreign-transaction fees and offers 3% cash back on all purchases.
The credit card is the latest in a series of new products from Robinhood. Last year, the company introduced retirement investment accounts for its customers and launched its platform in the United Kingdom after two previous attempts at international expansion failed.
While Robinhood could be commended for its efforts aimed at diversification, there is no indication whether any of the new ventures will succeed and help the company’s earnings.
Don’t Buy HOOD Stock
Robinhood continues to be infamous for the role it played in the meme stock craze of 2021. The company’s transformation into a financial services company will require patience for any new ventures to succeed, if they do.
In the meantime, the company’s fortunes look destined to rise and fall with the stock market. There are so many better stocks available to buy, it doesn’t make sense to risk capital on Robinhood Markets. HOOD stock is not a buy.
On the date of publication, Joel Baglole 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.
