The Robinhood Top 100 list can be a great way for investors to find out which stocks are hot (and which are not). Retail investors have played a more important role in shaping the markets this year as zero-commission and fractional trades are making it easier to invest even small amounts on hot tickers.
Two stocks that were rising in popularity during the month of October include HEXO (HEXO -12.82%) and Fastly (FSLY 4.40%). At the start of the month, neither stock was on the Top 100 list, but by Oct. 25, both were included. Let's take a look at what happened with the stocks during that time and why Robinhood investors have been bullish on them.
Aside from announcing on Oct. 9 that Trent MacDonald would become the company's acting chief financial officer (CFO), taking over from Stephen Burwash, news was scarce surrounding the Quebec-based pot stock aside from the release of its earnings report, which didn't come out until Oct. 29. By then, the stock had already fallen outside the Top 100 list again. The reason for the surge in HEXO's popularity with Robinhood investors likely came as a result of the vice presidential debate that took place on Oct. 7. At that debate, Democratic candidate Kamala Harris vowed to decriminalize marijuana. Pot stocks popped on her words, as any news relating to marijuana reform often gets investors bullish on the industry. Shares of HEXO are simply along for the ride.
Last Thursday, when the company released its results for the period ended July 31, HEXO's net sales for the fourth quarter came in at 27.1 million Canadian dollars ($20.34 million), up 23% from the third quarter and 76% from the prior-year period. Beverage sales of CA$2 million were a bright spot for the company and gave overall numbers a big boost. In Q3, HEXO had reported just CA$431,000 from cannabis beverage sales.
However, the company reported a sizable net loss of CA$169.5 million, more than nine times the CA$18.8 million loss it incurred in the third quarter. Writedowns of inventory and impairment losses made up more than CA$92.5 million in expenses during the period. HEXO also incurred CA$54.3 million in losses relating to convertible debt. After this and many other adjustments, the company's adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) was a loss of CA$3.3 million -- which still compares favorably to the CA$4.1 million EBITDA loss from Q3.
Cloud company Fastly also saw an increase in interest on the Robinhood platform in October. But the stock has been making news for all the wrong reasons, falling more than 25% during the month after releasing some underwhelming results. On Oct. 14, Fastly released preliminary third-quarter numbers that indicated its sales for the period ended Sept. 30 would be lower than anticipated. It said it was projecting revenue to come in between $70 million and $71 million for the period, which would be well below the range of $73.5 million to $75.5 million that it forecast in its previous guidance. Fastly withdrew its guidance for the year and Q3, blaming an "uncertain geopolitical environment" and stating that "usage of Fastly's platform by its previously disclosed largest customer did not meet expectations."
The probably customer in question is TikTok, which is owned by Chinese company Bytedance and made up 12% of the Fastly's revenue through the first six months of the year. In Q3, Fastly noted that its "previously disclosed largest customer" was now down to 10.8% of sales through the first three quarters, stating that the customer "removed a majority of their U.S. and non-U.S. traffic from our platform by the end of the quarter." The California-based company went on to say that "we believe this global traffic reduction was in response to the potential of a prohibition of U.S. companies being able to work with this customer."
This all alludes to the U.S. government's effort to ban the TikTok app because of the company's close ties with the Chinese government, which it argues is a risk to national security. There is a potential agreement in place that would see TikTok sell its U.S. operations to Oracle and Walmart, which could then help remove the ban, but it remains uncertain if that deal will go through. With the future of TikTok's U.S. business uncertain, typical investors were -- and might rightfully remain -- bearish on Fastly.
On Oct. 28, the company ended up reporting sales growth of 42% in Q3, with revenue of $71 million coming in at the higher end of its revised guidance for the period.
Year to date, Fastly is still up more than 240%, but the recent crash in the stock's price has likely made Robinhood investors bullish on the potential for a rebound if a deal involving TikTok, Walmart, and Oracle ends up going through. Robinhood investors are known to be more daring and risk-tolerant than your average investor, and so it's no surprise that, despite the stock's recent plunge and the uncertainty surrounding it, Robinhood investors are buying up more shares of the company.
Should you buy either of these stocks today?
These stocks have been heading in opposite directions this year, with Fastly significantly outperforming HEXO and the S&P 500 thus far:
But anytime a single customer makes up more than 10% of your revenue, it constitutes a risk that investors need to take into account, especially given the question marks surrounding TikTok's U.S. operations. Until there is more clarity on TikTok's future in the U.S., investors should wait on the sidelines before making a decision on Fastly, as the stock could fall even lower if the end result isn't favorable. And HEXO, with all of its impairment losses and writedowns, is too much of a headache to consider investing in right now. The company still has a lot to do to strengthen its financials before it's an investable business for millennial Robinhood investors, or anyone else. Even if the U.S. decriminalizes marijuana, it's not a move that will help the Canadian-based pot stock, as it still wouldn't be able to sell its marijuana products south of the border -- at least, not until full federal legalization takes place.
There are better growth stocks out there for risky Robinhood investors and non-Robinhood traders alike to choose from; they're all better off steering clear of both HEXO and Fastly for now.