Robinhood Markets (HOOD -4.30%) stock shot higher Friday afternoon after BofA Securities analyst Craig Siegenthaler double-upgraded the stock from "underperform" to "buy" and added another $10 to his previous $14 price target.
As of 12:30 p.m. ET, Robinhood stock is up 12%.
What Bank of America says about Robinhood stock
Bank of America initiated coverage of Robinhood stock shortly after its 2021 initial public offering (IPO), at a time when retail engagement was peaking -- and about to fall. Business hit a nadir in 2023, but since then, Siegenthaler says Robinhood has enjoyed a remarkable turnaround, with growth accelerating, user engagement increasing, costs being cut, and operating leverage taking hold.
As I wrote last week, Robinhood's first-quarter earnings results were simply tremendous, featuring a 40% surge in revenue and $127 million in profits. Nor was this a fluke. In fact, S&P Global Market Intelligence reports that Robinhood has reported positive net income in three of its last four reported quarters and positive free cash flow in two of those quarters.
Is Robinhood stock a buy?
Admittedly, trailing-12-month results still show Robinhood with negative free cash flow. And $127 million in profit is not a lot for a company valued at $15.7 billion, resulting in a trailing price-to-earnings (P/E) ratio of 124. But analysts are forecasting Robinhood will end this year with as much as $463 million in net income, lowering its current-year P/E to a much more palatable 34.
Suffice it to say that 34 times earnings for a stock growing its business at 40% would actually be a very nice price to pay for Robinhood. While the stock's not guaranteed to hit the targets Wall Street has set for it, Robinhood is on the right track and growing nicely.
Bank of America is right: Robinhood stock might finally be a buy.
