The IPO was only a few weeks ago, but stocks from Discount Brokerage Robinhood Markets (NASDAQ: HOOD) have more than doubled at one point and are currently trading nearly 50% from their original asking price. The share has a polarizing effect on the investing community. Many old-school investors believe that Robinhood stock is grossly overvalued as it now trades at 60 times its 2020 sales despite only making a marginal profit.
But a newer class of retail investors see it very differently. They believe the company and its eponymous app are an important (and more affordable) means to an end for millions of nontraditional investors to participate in the profits that investments can offer. Robinhood’s toll-free, easily accessible structure allows virtually anyone to sign up and participate in investments, including the trendy, meme-oriented short squeeze that have produced delicious returns for some.
It is these efforts by “proletariat” investors to quickly gain the upper hand in the stock market revolution that strongly suggest that Robinhood stock has much more wiggle room. Let’s look at three reasons a 10-inch backhoe has potential for Robinhood shareholders.
1. Robinhood has an exploding user base
Robinhood currently has 17.7 million active monthly users and the number is growing. More than 80% of new users signed up through word of mouth or referrals. The r / WallStreetBets community forum on Reddit went a long way here. Some of the discussions on this subreddit served as an unofficial marketing campaign on behalf of Robinhood. Readers of this popular online forum regularly see postings from traders who “flex” their profits and “glorify” their losses via screenshots from the Robinhood stock trading app. The new, investment-minded viewers of the subreddit want to imitate their heroes with the same tools.
But it’s not just about having a dedicated community of core users. Robinhood does not take any commission on stock or option trades from users and generates a portion of its income from interest on margin loans and payments for the flow of orders from institutional market makers. The latter remains controversial, but it’s hard to complain when trading for free. Because of this, new customers keep flocking in, even after the company makes headlines about how it is dealing with the company GameStop Short squeeze saga.
2. Robinhood has potential for international expansion
Currently, Robinhood operates only in the United States and provides services to citizens and permanent residents with an American address. This means that Robinhood has no official international revenue. One way to maintain its current growth path would be to expand the same commission-free broker model to America as well as Europe and Asia. Last year the company planned to launch its eponymous app in the UK. These efforts were postponed as Robinhood was forced to turn its attention to the domestic market and focus more on regulatory compliance.
3. Integration with other asset classes
Robinhood isn’t just about trading stocks and options. The company also enables commission-free trading in rare metals such as gold and cryptocurrencies. Popular coins like Bitcoin, ether, and Dogecoin are all available for trade. In the first quarter of the year, cryptocurrencies made up approximately 12% of Robinhood’s assets under custody.
But its innovative, low-fee model could be traditional exchanges like Binance and. seriously disturb Coin basewho usually charge high commissions as a source of income. The company is still barely part of the fast-growing cryptocurrency market, where around $ 80 billion worth of coins are exchanged every day. So there is a lot of market share to be gained. In addition, the expansion to other assets such as cryptocurrency derivatives, stock futures, 41 (k) and pension fund management, and bonds could further increase acceptance by institutional investors, especially the latter.
Take away investor
The continued growth in the number of users enjoying the app, its potential to maintain it through international expansion, and the expansion of its asset class to include cryptocurrencies are all factors driving the stock to generate high returns for the company and its shareholders. In addition, there is the “free marketing department” made up of WallStreetBet dealers who help the company cut expenses and generate profits in parallel with sales growth. All of this adds up to something most unicorn companies can’t.
New and prospective investors should keep in mind that the market expects a lot from Robinhood and that is factored into its current valuation. If the company stumbles in its expansion efforts or encounters financial regulatory obstacles, the stock is likely to experience real volatility and the potential for significant losses.
Overall, the analysis suggests Robinhood has what it takes to be a top financial stock and real potential for 10-dredger returns.
This article represents the opinion of the author who may disagree with the “official” referral position of a premium advisory service from the Motley Fool. We are colorful! Questioning an investment thesis – even one of our own – helps us all reflect critically about investing and make decisions that will help us get smarter, happier, and richer.