With A New Crypto Wallet Coming Soon, Is Now a Good Time to Buy RobinHood (HOOD)?

Robinhood Markets Inc. (HOOD) is an American financial services company headquartered in Menlo Park, California. The company’s platform offers trading services on U.S. listed stocks, exchange-traded funds (ETFs), options, American depositary receipts (ADRs), and cryptocurrencies. 

HOOD also provides fractional trading, which enables its retail customers to buy a portion of a stock, no matter the price, with small amounts of money.  The company also supports recurring investments and cash management, which includes Robinhood-branded debit cards.

The app is highly popular with millennials and Gen-Z traders and processed a huge volume of transactions linked to the advent of “meme stock” trading. This trading frenzy brought a lot of attention to the platform from investors and politicians alike. HOOD was required to testify before congress on their handling of trading stocks that were the focus of the Reddit trading community. However, in spite of this notoriety, the app is now a household name.

Since the listing of HOOD on the Nasdaq in July 2021, shares of HOOD surged 26%.

While HOOD is not profitable, analysts expect the company to turn a profit in the next 2 years.

Analysts are expecting fast-paced growth for the retail broker. HOOD’s net sales should jump 34.5% in 2022 to $2.68b and reach $3.44b the following year, representing an annual growth rate of 28.7%.

In terms of the bottom line, the company is expected to lose a whopping $3.04b in 2021. This loss should, however, shrink considerably in 2022 to $131m and analyst’s projections indicate that the company will become profitable in 2023, with a net profit of $150m.

Despite that, HOOD has a comfortable balance sheet that provides enough flexibility to continue towards its growth path. With a net cash position of $1.08b in 2021, the retail broker specialist has sufficient cash to develop its operations and enhance its trading platform.

Also, HOOD has shown that it has a loyal base of retail customers and an impressive growth in monthly active users. Moreover, the platform’s monthly active users more than doubled year-on-year to 17.7m in the first quarter of 2021, whereas average revenues per user surged 65% year-on-year to $137.

The company’s crypto wallet should boost its growth profile, yet, competition in the fintech sector is fierce and HOOD is overvalued compared to peers.

HOOD recently announced it is set to begin testing cryptocurrency wallets for some of its customers and sees potential growth in the cryptocurrency space. The company did not disclose which coins will be supported, but users will be able to move crypto to and from their HOOD wallets to other wallets.

The company hopes that revenue from crypto trading is set to become a key driver of revenue for the company. In August, the company said that revenues surged to $233m in the second quarter of 2021, from just $5m a year before.

In addition, analysts are projecting that transaction-based revenue from crypto will rise to $520.5 million in 2023 from a projected $477.5 million this year, which should accelerate the company’s profitability.

Nevertheless, competition in the U.S. fintech industry will intensity in the coming months, as Revolut, a U.K. based fintech player with operations throughout the world, is set to take on HOOD after it announced that it recently secured a U.S. broker-dealer license from the Financial Industry Regulatory Authority (FINRA). This will likely tap into some of HOOD’s potential future customer growth and boost the competitive dynamics of the U.S. commission-free brokerage industry.

Ultimately, HOOD’s valuation metrics are expensive, as the company trades at a high P/S ratio of 22.41x and an EV/Revenue of 22.72x, whereas its closest listed competitor Interactive Brokers Group Inc. (IBKR) is twice as cheap in terms of P/S, with a ratio of 9.37x.

Conclusion

HOOD has been disrupting the traditional brokerage space and should continue to do so after the launch of its crypto wallet, which will make  investing in digital assets easier and more accessible. However, the crypto broker specialist is still unprofitable and has high valuation metrics compared to public trading peers. Therefore, we prefer to stay away from this volatile stock at its current valuation.