Robinhood Stock Shows Why Shareholders Could Expect Higher Prices

Key Points

• Robinhood stock delivered another stellar quarterly performance to justify Wall Street's view of a double-digit upside ahead. 
• With all drivers running the business higher and the stock's growing popularity among retail and professional investors, it is well on its way to becoming a large-cap name. 
• Short sellers bail out of Robinhood stock, leaving stock behind to be picked up by institutional capital.

Most market participants tend to overcomplicate the art of investing. Sometimes, it is as simple as finding a business with a somewhat strong moat (whether brand or product), strong and growing financials, and selling at a discount. Recently, the S&P 500 and other stock indexes across the globe have delivered rising volatility to rock most investors’ portfolios. Now, there is no reason to panic; rather, stick to the fundamentals.

Robinhood Markets Inc. NASDAQ: HOOD isn’t seasoned enough to showcase sufficient historical performance through business cycles, so it is a hard example to look at how that company fares through the volatile environments encountered today. On the other hand, investors can take some of the main factors away from this list of highly profitable businesses that are market outperformers in past crashes.

This is not to say that Robinhood is there when it comes to numbers, but investors can—somewhat safely—assume that the company is well on its way to earning a spot on one of these lists. Being part of the financial sector today is difficult, especially as Warren Buffett decided to cut ties with his Bank of America Co. NYSE: BAC stake, as reported this past weekend. However, here’s how Robinhood has stood out from the pack lately.  

All Drivers Running: Robinhood Stock Poised for a Surge

There are many financial gurus in the content arena today who deliver strategy and insights to their viewers. A decent number of them use the Robinhood platform for trading and investing. This broad adoption and market penetration, combined with the easy-to-use and friendly user experience, makes Robinhood a worthy adversary.

In fact, when Monday’s sell-off came around, Robinhood’s platform kept up with the volume of traders looking to get their pound of flesh out of the volatility. Other peers, like Charles Schwab Co. NYSE: SCHW, were reportedly facing difficulties due to the sheer volume, and that’s just another point for quality in favor of Robinhood.

Those investors looking to quantify these benefits can look to the company’s recent second quarter 2024 earnings report and see that all business drivers have been firing on all cylinders lately.

Starting with revenue, which reached $682 million, or a 40% annual bump, this revenue, based on Robinhood’s business model, comes through the number and quality of users, so here’s what that looks like.

Funded customers grew to 24.2 million in the quarter, a one million increase from the previous year. These customers drove net deposits to $13.2 billion, up by 37% in the past 12 months, which is not insignificant considering these sums aren’t small.

Gold subscriptions, which offer users various benefits like a gold card and higher interest yield on deposits, leverage, and others, also increased. Net subscribers reached 1.98 million in the quarter, up 750,000 on the year and carrying an adoption (conversion) rate of 8.2% for an all-time high.

However, the figure that really brings it all together is Robinhood’s assets under custody (AUC), which reached a record $140 billion, up 57% over the past year. Few brokerages can say the same about their AUC numbers, and that is where Robinhood’s popularity comes to life.

Wall Street’s Take: Robinhood Stock Has Double-Digit Upside Potential

Currently, Wall Street analysts see up to 10.5% earnings per share (EPS) growth in Robinhood stock for the next 12 months. However, some investors would argue this projection lies on the conservative end of the spectrum. During the past quarter, Robinhood delivered record EPS of $0.21, a sevenfold increase from last year’s $0.03 EPS.

Leaning on this momentum, investors could now expect a higher growth revision from analysts, but those at JMP Securities may have gotten ahead of the curve in anticipation of the recent quarterly performance.

Placing a valuation of $30 a share for Robinhood stock not only calls for 75.4% from where it trades today but also means a new 52-week high for the company. In the face of all this bullish evidence, some short sellers decided to bail out of the company, as Robinhood stock’s short interest declined by 11.5% over the past month alone.

All told, it should come as no surprise for investors to learn that the Vanguard Group (Robinhood’s largest shareholder) boosted their stakes in the company by 1.8% over the past quarter, bringing the asset manager’s net investment up to $1.1 billion today.