Robinhood Markets HOOD is proving to be a big beneficiary from the post-election rally. Since Nov. 5, Robinhood shares have surged 51.6% and touched a new three-year high of $39.74 on Monday.
In contrast, since Election Day, its peers – Charles Schwab SCHW and LPL Financial LPLA – have gained just 14.7% and 17.9%, respectively.
This exceptional rally has helped HOOD shares to skyrocket 197.1% this year, significantly outperforming the industry’s rise of 46.9%.
Year-to-Date Price Performance
Image Source: Zacks Investment Research
Why Robinhood Shares are Soaring on Trump's Reelection
During the election campaign, President-elect Donald Trump called the United States the cryptocurrency “capital of the planet” and promised pro-crypto policies. The potential changes are expected to benefit Robinhood, which has been at loggerheads with the Securities and Exchange Commission over its crypto business.
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.
This will support Robinhood’s cryptocurrency revenues as new investors will be attracted to the 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
Image Source: Robinhood Markets, Inc.
Additionally, recovery in deal-making activity and eventually, initial public offerings will likely lead to a solid retail trading environment into the next year. This will boost Robinhood’s transaction-based revenues, which constitute almost 50% of its total revenues.
Total Revenue Segregation
Image Source: Robinhood Markets, Inc.
Robinhood’s total net revenues have recorded a CAGR of 61% over the last four years (ended 2023), with transaction-based revenues witnessing a CAGR of 46.4%. Robinhood’s focus on transaction-based revenues, its commission-free model and supportive outlook for the incoming administration will drive its revenues higher.
Other Factors Supporting HOOD Stock
Broadening & Diversifying Operations: Robinhood has been striving to widen its market and reach. Recent initiatives by the company reflect its ambition to become a full-spectrum financial services provider.
On Nov. 20, Robinhood announced the $300 million acquisition of TradePMR, a custodial and portfolio management platform specializing in services for Registered Investment Advisors (RIAs). By foraying into the advisory space, the company will directly compete with established players like SCHW, LPLA and Fidelity Investments.
Additionally, 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, the company announced plans to acquire Bitstamp in June 2024. 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.
Recently, HOOD launched a credit card (expanding in the consumer finance space) and a desktop trading platform (catering to more sophisticated traders). Further, the company has started offering futures, index options and election betting contracts, widening its market appeal.
Initiatives to change the revenue mix give HOOD solid leverage.
Sales Estimates
Image Source: Zacks Investment Research
HOOD Rewards Shareholders: In May, 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.
Analyst Sentiments Bullish on HOOD
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.
The Zacks Consensus Estimate for HOOD’s earnings implies a 221.3% and 19.7% year-over-year growth for 2024 and 2025, respectively.
Earnings Estimates
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Find the latest earnings estimates and surprises on Zacks Earnings Calendar.
HOOD’s Lofty Valuation
Driven by the impressive rally, HOOD stock is trading at a premium. Currently, the stock is trading at 4.90X 12-month trailing price/tangible book (P/TB), above the industry’s P/TB TTM multiple of 2.74X.
Price-to-Tangible Book Ratio (TTM)
Image Source: Zacks Investment Research
What Should You Do With Robinhood Shares Now?
A thorough analysis shows that 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 documents 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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Today, See These 5 Potential Home Runs >>The Charles Schwab Corporation (SCHW) : Free Stock Analysis Report
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Robinhood Markets, Inc. (HOOD) : Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
