Does Robinhood’s stock represent a buying opportunity for investors at under $13?

Hindsight is 20/20, and for Robinhood’s co-founders, it appears that the timing of the company’s NASDAQ floatation couldn’t be much worse. Today, as the price of HOOD tumbles below $13 - a decline of more than 62% from its debut value - it may be time to take a look at whether the stock has fallen into a buying opportunity for investors. 

Robinhood’s arrival on the NASDAQ in late June 2021 looked to be a good idea at the time. After all, the cryptocurrency markets were showing signs of overcoming the sharp dips that saw Bitcoin shed half of its value in a matter of weeks in May, whilst the meme stock frenzy that Robinhood helped to facilitate was in full swing - with AMC stock rallying 1,161% to a year high on the 2nd June. However, despite a strong start to trading, HOOD soon embarked on a sustained decline. 

Despite benefitting significantly from the push towards payment-for-order-flow brokerages and a pandemic-driven rise in the volume of retail investors embracing stocks and shares, Robinhood’s stock has shown little sign of a trend reversal over the past six months. However, some analysts believe that 2022 may bring fresh opportunities to for the embattled online brokerage, and with that more upside potential for a stock that’s been desperate for a breakout. 

Banking on a Cryptocurrency Revival

Robinhood’s S-1 filing ahead of the company’s IPO revealed that HOOD’s success was heavily dependent on the performance of the cryptocurrency market - and in particular, the meme stock Dogecoin. 

“A substantial portion of the recent growth in our net revenues earned from cryptocurrency transactions is attributable to transactions in Dogecoin,” read Robinhood’s SEC filing. “If demand for transactions in Dogecoin declines and is not replaced by new demand for other cryptocurrencies available for trading on our platform, our business, financial condition and results of operations could be adversely affected.”

(Image: CoinMarketCap)

Despite much optimism that 2021 would be a major year for the growth of the cryptocurrency market, the total ecosystem’s market capitalization has fallen by around $1 trillion in under three months to signal that a deep bear market is fully underway. 

(Image: CoinGecko)

Likewise, we can see that the price of Dogecoin, an asset that’s integral to the performance of Robinhood, has fallen drastically from its highs in Q2 of 2021 - and today sits 82.4% adrift from its May all-time high. 

Despite the difficult outlook for Robinhood, Maxim Manturov, head of investment advice at Freedom Finance Europe, believes that Robinhood’s stock may stage a recovery just so long as the cryptocurrency market can pick up. 

“Recovery should be expected in the timeline of 3-6 months as the company launches a cryptocurrency wallet (more than 1m customers are awaiting the launch and access for all customers is expected in Q1 2022),” Manturov notes. “Also, the changing regulatory environment for new cryptocurrencies could help the company add new cryptocurrencies to trading, which could have an impact on cryptocurrency transaction revenues in the future.”

Although Manturov’s forecasts are dependent on the performance of the cryptocurrency markets, it’s important to highlight Robinhood’s focus on innovating into the ecosystem. The long-awaited arrival of Robinhood’s dedicated blockchain-based crypto wallet will strengthen the company’s position as a leader among brokerages that offer cryptocurrency services and will put Robinhood in direct competition with the likes of Coinbase, Binance, and other crypto exchanges. 

More Volatility Ahead for HOOD

However, not all analysts believe that HOOD is worthy of a buy even at such a discounted price. Writing for Investing.com, Jesse Cohen notes that he expects Robinhood’s stock to break down to new lows whilst the company’s financial results are revealed. 

“Consensus estimates call for the struggling Menlo Park, California-based stock market-trading platform to post a loss of $0.37 per share on revenue of $374.8 million when it reports fourth-quarter numbers after the closing bell on Thursday, Jan. 27,” Cohen said. 

“The fintech company warned that lower retail trading activity and seasonal headwinds would likely persist into year-end when it released weaker-than-expected Q3 financial results in October.” 

With the dust set to settle on the ending of the investor lock-up period, which took place in late January, Cohen believes that a possible implied move of around 17% in either direction is likely to help investors to gain an insight into the stock’s future intentions. 

Sadly for Robinhood, the company has also left plenty of controversies in its wake. According to The Street, early 2022 could be punctuated by meme-stock lawsuits filed against the brokerage for its role in restricting the trading of specific stocks that were moving erratically during the GameStop short squeeze of January 2021. In losing these lawsuits, Robinhood may face a costly knock to the company’s integrity for the retail investors it serves. 

Fundamentally, Robinhood’s future is likely to be in the hands of Bitcoin, and other large-cap cryptocurrencies. If these assets can arrest their own decline and bring more confidence back to crypto trading, Robinhood’s gamble may well be set to pay off. Otherwise, we may be set for an even more challenging year ahead for HOOD.