2021 has seen the emergence of the meme stock. The phenomenon’s rise has been facilitated by Robinhood Markets (HOOD), whose modus operandi is based on the notion investing should be open to all and sundry.
As befitting a stock closely correlated to meme stocks and crypto, since its splashy IPO less than a month ago, HOOD shares have been volatile, as the Street tries to assess what prospects lie ahead for the trading disruptor.
One analyst to have made up his mind on the matter is Mizuho’s Dan Dolev, who is unequivocal in his positive evaluation.
“With its 22.5mn active users and fetching 50% of all new retail US accounts, we view Robinhood not as a meme stock phenomenon, but as a singularity that captures Generation Z's zeitgeist,” the analyst said.
Dolev has a well-researched answer to most of the concerns raised amongst the analyst fraternity regrading this most talked about stock.
A common critique is that an investment in HOOD comes with a high degree of risk when compared to other trading apps due to “elevated” options trading and a fanbase accused of having a “herd mentality,” with users merely “betting” instead of participating in by the book “investing.”
“We disagree,” Dolev says bluntly. “Analyzing HOOD's options mix vs. that of E-Trade and TD Ameritrade shows more similarities than differences.”
While options were responsible for 60% of the revenue mix in 1Q21, they accounted for just 37% of shares traded. The simple answer to what that is, says Dolev following analysis of “hard-to-obtain data,” is that options are 2.5x more profitable than stocks.
Another common accusation is that HOOD traders are mostly just interested in the fad of the moment – meme stocks, of course.
Dolev says this perception is misguided too with evidence showing otherwise. During a “more normal trading environment,” the difference in S&P and non-S&P share mix compared to E-Trade and TD Ameritrade was “less accentuated.”
What about users being of one “homogenous group,” again making HOOD a risky proposition, should traders “lean towards similar trades?”
Not so. A Mizuho survey of FinTech App users shows that Robinhood users’ average household income is “relatively wide,” starting below $50,000 to more than $75,000
With the bearish arguments out of the way, Dolev lays out the bull case.
“We believe a TAM of 500mn US bank accounts, 2x ARPU upside potential, success in cash management, and becoming a single money app make HOOD attractive,” the analyst summed up. “We see sustained 40-50% two-year growth.”
Dolev also sees shares reaching $68, a Street-high target and one set to generate returns of 59%. Unsurprisingly, the analyst initiated his coverage on HOOD with a Buy rating. (To watch Dolev’s track record, click here)
Not all share Dolev’s enthusiasm. HOOD stock has a Moderate Buy consensus rating, based on 6 Buys vs. 5 Holds and 1 Sell. Going by the $51.9 average price target, shares are expected to appreciate by 6% from current levels. (See HOOD stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.