December 30, 2024
Robinhood Markets ’ HOOD shares are trading at a massive premium to the industry. At present, the company has a forward price/earnings (P/E) of 40.00X compared with the industry average of 13.95X.
Price-to-Earnings F12M
Further, HOOD stock looks expensive compared with its peers --
Charles Schwab
SCHW and
Interactive Brokers
IBKR. SCHW and IBKR have a forward P/E of 19.19X and 25.38X, respectively.
Based on this, Robinhood stock isn’t a good investment option for 2025. But before making any decision, let’s dig deeper.
Robinhood became extremely popular among younger generations in early 2021 riding on the meme stock wave. Nonetheless, since its IPO in July 2021, a lot has happened on the company front.
Robinhood has evolved from a brokerage firm mainly trading in digital assets to a more mature and diversified entity, striving to widen its market and reach. Looking at the numbers, in 2021, HOOD majorly depended on transaction-based revenues (almost 75% of total revenues) to generate income. In the first three months of 2024, this came down to nearly 50%.
Total Revenue Segregation
Recent initiatives by the company reflect its ambition to become a full-spectrum financial services provider. Last month, Robinhood announced the $300 million acquisition of TradePMR, a custodial and portfolio management platform specializing in services for Registered Investment Advisors. By foraying into the advisory space, the company will directly compete with established players like SCHW and Fidelity Investments.
Moreover, in July, Robinhood acquired Pluto Capital Inc. With the integration of Pluto’s advanced capabilities, the company is set to revolutionize the investment experience for its users. Also, as part of a diversification effort, HOOD launched a credit card (expanding in the consumer finance space) and a desktop trading platform (catering to more sophisticated traders). Further, the company started offering futures, index options and election betting contracts, widening its market appeal.
Initiatives to change the revenue mix give HOOD solid leverage. The company intends to become a one-stop shop for building generational wealth.
Sales Estimates
Further, during its first-ever Investor Day conference on Dec. 4, Robinhood announced plans to expand in Asia to capitalize on significant global growth prospects and launch Futures in early 2025, which it believes offers a nine-figure revenue opportunity.
Robinhood’s plans to focus on the cryptocurrency space through increased tokenization, enhanced capabilities and expansion into the EU markets will lead to further cost efficiency. Currently, it operates in four countries with regulatory authorizations. It has been applying for Markets in Crypto-Assets Regulation (MiCA) licenses that would enable it to offer crypto services in European Economic Area member states, boosting its presence in 27 new geographies.
The company’s planned acquisition of Bitstamp (announced in June 2024) complements this theme. Bitstamp's core spot exchange, which features more than 85 tradable assets and is popular in Europe and Asia, will significantly enhance Robinhood’s crypto offerings.
This will support Robinhood’s cryptocurrency revenues as new investors will be attracted to cryptocurrencies to boost their returns and leverage the benefit of diversification as an asset class. Over the last four years (2019-2023), the company’s cryptocurrency revenues witnessed a compound annual growth rate (CAGR) of 94.2%.
Transaction-Based Revenues Components
Further, President-elect Donald Trump is pro-crypto. The potential deregulation and the appointments of tech venture capitalist David Sacks as crypto czar and the Securities and Exchange Commission chair Paul Atkins are seen as steps toward making cryptocurrency widely acceptable.
The probable deregulation will enable HOOD to list more tokens and provide additional crypto-related products like stablecoins or staking. On Nov. 13, the company expanded its offerings for U.S. customers by introducing four new cryptocurrencies, bringing the total number of cryptocurrencies on its platform to 19.
In May 2024, Robinhood announced a share buyback plan. The company’s board of directors approved a share repurchase program, authorizing it to buy back up to $1 billion of its outstanding common stock.
While the plan has no expiration date, the company expects to buy back shares within two to three years. As of Sept. 30, 2024, roughly $903 million worth of authorization remained available for repurchase.
Robinhood is on solid ground, with significant cash reserves. As of Sept. 30, 2024, it reported cash and cash equivalents of $4.6 billion.
Over the past month, the Zacks Consensus Estimate for 2024 and 2025 earnings has moved upward. This upward adjustment reflects a positive sentiment among analysts and suggests encouraging prospects.
Estimate Revision Trend
The Zacks Consensus Estimate for HOOD’s earnings implies 231.2% and 21.8% year-over-year growth for 2024 and 2025, respectively.
Earnings Estimates
Find the latest earnings estimates and surprises on Zacks Earnings Calendar .
Robinhood shares emerged as a big winner in the current bull market. The stock has skyrocketed 206.3% this year. On the other hand, Schwab is up just 8.6%, while Interactive Brokers stock has soared 115.9%.
Year-to-Date Price Performance
Technical indicators suggest further strength for HOOD. The stock is trading above its 50-day and 200-day moving averages.
50-Day & 200-Day Moving Averages
This signals robust upward momentum and price stability for Robinhood. It also underscores positive market sentiments and confidence in the company's financial health and prospects for 2025.
Robinhood is on the right path to expand/diversify operations. Its initiatives to keep adding new products and services and plans to become a global entity by venturing across Europe and Asia Pacific regions, organically and through buyouts, align with its expansion efforts. The positive sentiments of analysts are echoed in the upward estimate revision trends.
However, investors should move cautiously as the talks of deregulation and further improvement in the trading environment are all about the future. They should keep an eye on the incoming administration’s policy decisions related to cryptocurrencies and the deregulation of the financial service sector before taking a plunge at such a high valuation.
Those who already own HOOD stock can hold on to it because it is less likely to disappoint over the long term. At present, Robinhood carries a Zacks Rank #3 (Hold). You can see
the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
.
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