It has been a unbelievable yr for inventory market traders. On the time of this writing, the S&P 500 index has returned 28% so far in 2024 amid a resilient macroeconomic backdrop and document company earnings.
The situation has been nice information for Robinhood Markets (HOOD 1.28%), which has emerged as a giant winner on this bull market. Shares of the web brokerage and monetary companies platform are up roughly 200% yr to this point, propelled by a pointy rebound in buyer buying and selling exercise and accelerating profitability.
The current traits have been optimistic, however is that sufficient to maintain the rally going? Let’s think about what to do now with Robinhood Markets inventory.
The case to purchase or maintain Robinhood
Robinhood started buying and selling as a public firm in July 2021 at $38 per share. The corporate’s revolutionary person interface with commission-free buying and selling on shares, exchange-traded funds, and choices proved to be extremely common through the pandemic-era financial increase.
However, the corporate struggled by means of the following inventory market sell-off, as shopper transactions declined sharply. The inventory fell to a low of $6.89 in 2022 as monetary losses mounted. Among the many considerations was the viability and moral propriety of the corporate’s enterprise mannequin, through which it bought buyer commerce orders to market makers for execution. Promoting these orders was crucial to the corporate’s capability to supply shoppers no-commission buying and selling.
The excellent news is that the most recent information suggests Robinhood has put collectively fairly the turnaround. The inventory just lately climbed above the $38 worth at its preliminary public providing for the primary time since late 2021, with the corporate gaining traction from a extra diversified lineup of monetary companies.
Picture supply: Getty Photos.
Within the third quarter, complete web income climbed by 36% yr over yr, with transaction-based income main development, up 72% from the prior yr quarter. Robinhood has added 1.1 million new funded accounts with the present 24.3 million surpassing the prior second-quarter 2021 document. The extent of property underneath custody at $152 billion can be at an all-time excessive, benefiting from increased asset costs together with a resurgence in cryptocurrencies.
A significant theme for Robinhood this yr has been its capability to win over bigger purchasers who’re extra energetic merchants, with its new superior options. Past the elevated buying and selling, the corporate is benefiting from traction in merchandise like bank cards and its premium Gold subscription service. The result’s earnings per share (EPS) of $0.17 this quarter, reversing a lack of $0.09 in 2023’s second quarter.
There’s optimism that the momentum will proceed. Based on Wall Avenue estimates, Robinhood is forecast to realize 45% annual income development this yr whereas EPS greater than doubles from 2023 to $1.11. For 2025, earnings development is projected to normalize towards a still-solid 12%.
In the end, traders who’re assured in Robinhood’s long-term alternative have loads of purpose to purchase or proceed holding the inventory now.
| Metric | 2023 | 2024 Estimate | 2025 Estimate |
| Income | $1.9 billion | $2.7 billion | $3 billion |
| Income change (YOY) | 37% | 45% | 12% |
| Adjusted EPS | $0.49 | $1.11 | $1.24 |
| Adjusted EPS change (YOY) | N/A | 127% | 12% |
Information supply: Yahoo Finance. YOY = yr over yr.
The case to promote shares of Robinhood
There’s quite a bit to love about Robinhood, nevertheless it’s essential to contemplate what may go improper. One uncertainty stems from the intensely aggressive panorama amongst brokerages and fintechs.
Customers and energetic merchants have many options to select from with comparable capabilities. Fee-free buying and selling, as soon as seen as a disruption within the trade, is now accessible on many bigger buying and selling platforms. In cryptocurrencies, Robinhood is up towards specialised gamers like Coinbase International and even Block, which additionally provide buying and selling and wallets with a collection of competing fintech companies.
The opposite consideration is that shares of Robinhood are buying and selling at a ahead price-to-earnings ratio (P/E) of 38. This degree seems expensive, at the least subsequent to conventional friends like Interactive Brokers and Charles Schwab, which commerce at a mean ahead P/E nearer to 27.
Buyers who’re skeptical whether or not Robinhood is differentiated sufficient to meaningfully seize market share may think about avoiding or promoting the inventory.
HOOD PE ratio (ahead) information by YCharts.
Choice time: I am cautiously bullish on Robinhood
Whereas a repeat of its big 2024 rebound rally is unlikely, I imagine the outlook for Robinhood Markets is robust sufficient to help a better inventory worth by this time subsequent yr. Buyers with practical expectations and a willingness to abdomen some potential inventory market volatility can discover a place for it inside a diversified portfolio.
Charles Schwab is an promoting accomplice of Motley Idiot Cash. Dan Victor has no place in any of the shares talked about. The Motley Idiot has positions in and recommends Block, Coinbase International, and Interactive Brokers Group. The Motley Idiot recommends Charles Schwab and recommends the next choices: brief December 2024 $67.50 calls on Charles Schwab. The Motley Idiot has a disclosure coverage.
