A “Robinhood (NASDAQ:HOOD) stock” is one with bad fundamentals small investors buy anyway to squeeze shorts and “get the man.” It’s practically a synonym for a trade made by . Robinhood is also a Robinhood stock.
Since its first day’s close of $35.15 on July 5, 2021, shares are down 73%. In 2023 they’re up just 14%, and they’re down 5% in the last month. Why is that, and can management rescue investors?
A Closer Look at HOOD Stock
Robinhood is a trading platform. Its Bulgarian-American CEO, , was played by Romanian-American actor in the movie.
Tenev co-founded Robinhood with Indian-American . He had built high-frequency trading platforms for New York financial institutions. It was a classic “fintech,” funding its growth through stock sales and borrowing money cheaply.
The Federal Reserve killed that business model. With money costing serious money, and with interest by small investors waning, Robinhood has a casino with limited action. The company still has 10.8 million accounts, and under active management. But the average account is worth just $4,000. Its trading volume in crypto currencies has .
Analysts have turned lukewarm on HOOD stock, with 2 of 11 at Tipranks telling clients to sell, and . Traders at Stocktwits , however. One recently wrote
Is This the Bottom for HOOD Stock?
Robinhood’s calling card is , a subscription feature offering 4.9% interest on cash. It also offers research and lower-interest margin accounts. Recently the company has added support for Individual Retirement Accounts and bought a credit card issuer called
Here’s the big news. Robinhood has even made a little money. In the second quarter that came to $25 million, , and revenue of $486 million. Robinhood next reports earnings on November 7. Analysts a loss of 8 cents.
Part of Robinhood’s problem is that rising interest rates and falling stocks have made investors cautious. Even industry leader Charles Schwab (NASDAQ:SCHW) is floundering, down 34% on the year.
A bigger problem is Robinhood’s reputation as a get rich quick marketplace. For millennials, the interest rate rise and the 2022 market are what the 2000 dot-com crash was for their parents. They are cats who were burned on a hot stove, and now won’t go near a cold one, either.
The Bottom Line
HOOD stock has what I call a “happily ever after” problem.
Its image is that of a brokerage for young, swashbuckling traders. But even young traders get older. Swashbuckling is a phase, like going to clubs. People get burned out by it, and clubbing goes out of fashion.
Robinhood stock could make a comeback if the trading mood changes. It does best in a market marked by greed, not fear. If interest rates start falling, it could pick up momentum.
But that would require it to find new blood among Generation Z, which does have great interest in . Robinhood is popular among this group . , as Millennials were burned.
With its stock trading at around 4.4 times revenue, and an operation that’s profitable, Robinhood does look attractive here. But the company, and its marketing, needs to grow-up if it’s to capitalize on the opportunity.
As of this writing, Dana Blankenhorn had a LONG positions in SCHW. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.cribe to his free Substack newsletter .
