Many readers have become excited about Robinhood Markets (NASDAQ:HOOD) lately. At $21.50 per share, Robinhood stock is up 68% for 2024. It has increased by almost 130% in the past year. It’s also down 43% from its 2021 debut price of around $31. Its market cap on June 3 was nearly $18.8 billion, 9.5 times its 2023 revenue of $2 billion.
The upside for Robinhood stock is obvious. It’s the chosen vehicle for meme traders and other young speculators. It offers free trading and pays interest on parked cash balances, for its $50/year Robinhood Gold service. But is it a buy?
The Buy Case for Robinhood Stock
Robinhood is buying itself. Directors authorized a $1 billion stock buyback plan in May, spread over three years.
Robinhood has since lowered the interest rate charged on margin loans and launched a new media arm, Sherwood News.
About 20% of first quarter revenue came from cryptocurrencies. The company has rolled out a crypto API for U.S. based traders, letting them set up automated trading strategies. Traders can use the API without opening the company’s main app.
Robinhood CEO Vlad Tenev says he wants to grow rich with his clients, offering wealth management services to the younger traders Robinhood made its reputation on.
The key is Robinhood Gold. It offers a 3% match on retirement account rollovers. Its credit card now pays 3% cashback. Robinhood had $119 billion of assets under management in February. That’s what it had at the height of the last meme stock craze, in mid-2021.
The Sell Case
Before you pull the trigger, our Chris MacDonald writes, know that it comes with considerable risk.
The crypto trading unit caught a Wells Notice last month. That means the Securities and Exchange Commission will likely sue Robinhood Crypto over trading certain coins.
Robinhood tried to avoid this by dropping some coins when the agency sued Coinbase (NASDAQ:COIN) last year. The company says it’s disappointed and that it tried to register as a special broker dealer last year.
Shares are up 20% since the latest meme stock rally, and Robinhood is just settling a suit over the last one. Plaintiffs said it manipulated the price of stocks, choosing which clients could buy.
In the latest frenzy, Robinhood is already limiting buys of GameStop (NYSE:GME). It is taking overnight orders at only 20% above or below the previous day’s closing price. Some traders say they were completely blocked.
Then there’s action by insiders. CEO Tenev recently sold over 45,500 shares at $21.11. He’s been selling all month, a total of about 850,000 shares. Co-founder Baiju Batt left the company in March “to pursue other interests.”
Tech whisperer Cathie Wood of ARK Funds also sold $28 million of Robinhood last month. That’s not a vote of confidence.
The Bottom Line
Robinhood stock will rise throughout the current meme stock craziness.
But craziness ends. I can’t see justifying it a higher price in a normal market.
I wouldn’t say it’s headed for a massive plunge, as our Larry Ramer recently predicted. I’m not that bold. Ramer is worried about the regulators and a stock market correction, which would hit Robinhood harder than other brokers. Those are valid concerns.
I just think despite its turn toward IRAs, Robinhood remains a place for plungers, not investors. It will rise and fall with the temperature of the market. Right now, that temperature is high. When it falls, so will Robinhood.
On the date of publication, Dana Blankenhorn 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 InvestorPlace.com Publishing Guidelines.
