Robinhood stock price has a 42% upside but faces key risks

Robinhood stock price is firing on all cylinders, helped by the strong equity and crypto market. HOOD jumped by 206% in 2024, pushing its market valuation to over $34 billion. So, is this disruptor a good investment?

Robinhood is a good growth story

Robinhood Markets is a popular fintech company that successfully disrupted the financial industry. Its business model allows customers to buy stocks, cryptocurrencies, and options through their apps and its website.

HOOD introduced the commission-free buying stocks, an approach that has been embraced by other companies like Schwab and Interactive Brokers. It also pioneered the concept of gamification that has made it highly popular among young people.

HOOD makes most of its money through a concept known as Payment for Order Flow (PFOF), which lets market makers like Virtu Finance and Citadel pay it for directing orders to them. These market makers operate as wholesale shops and pay Robinhood a small commission.

The company has expanded its offerings and is now a major player in the subscription industry. Through Robinhood Gold, the firm charges customers $5 a month and then offers them returns by investing in safe government bonds. The subscription business helps it generate quality and predictable recurring model.

Robinhood’s success is also because of its strong innovation record. It launched Robinhood Legend, a solution aimed at day traders that lets them buy and short assets on their browser. It also has a credit card that offers 3% cashback on all purchases.

All these initiatives have made HOOD a high growth company as its annual revenue moved from $277 million in 2019 to over $2.4 billion in the trailing twelve months (TTM). 

HOOD’s growth is continuing

Robinhood’s third quarter numbers showed that its business continued doing well as its revenue jumped by 36% to $637 million. 

Most of this revenue came from its transaction business, which made over $319 million. Net interest revenue rose to $274 million, helped by higher deposits and interest rates.

The Fed has maintained higher interest rates in the past few years, helping companies generate interest income. In Robinhood’s case, the amount of money in its custody rose by over 76% to $152.2 billion. 

The other segment made $44 million, helped by ots gold subscriptions, whose subscribers rose to 860,000. Analysts expect that this business will continue doing well, as the company uses the Netflix model to gradually hike prices. 

Analysts are optimistic that Robinhood’s business will continue doing well in the foreseeable future. The average estimate of 14 analysts tracking the company is that its annual revenue will move to $2.74 billion this year and $3.11 billion next year. 

Robinhood is also expected to be highly profitable. The earnings per share (EPS) for the year is expected to be $1.14, followed by $1.3 in 2025. Robinhood has a long record of beating analyst forecasts, meaning that its business will likely do better.

The risk, however, is that HOOD does well when stocks and cryptocurrencies are thriving. If stocks fall as we predicted, there is a risk that it will also retreat since it is often common for a year’s best performers to lag in the following one.

Robinhood stock price analysis

The weekly chart shows that the HOOD share price bottomed at $7.62 in 2023 and has been in a slow uptrend since then. It has moved above the 38.2% Fibonacci Retracement level and the 25-week Exponential Moving Average (EMA). 

HOOD has been slowly forming a bullish pennant pattern, a popular bullish continuation sign. Therefore, the stock will likely continue surging in 2024, with the next viable reference point being the 61.8% retracement point at $55.30. The stop-loss of this trade is at $36, the 38.83% retracement point, which is 42% higher than the current level.

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