Retail investors have grown their profile recently with the social media community on Reddit driving a trading frenzy in a handful of heavily shorted stocks. That situation also thrust trading platform Robinhood into the spotlight with its clientele of retail investors attracted by a convenient app and zero-commission trades.
Those Robinhood investors are attracted to different stocks for different reasons. Some top Robinhood stocks have great potential as long-term investments, while other popular names simply trade on speculation. Let's look at why Walt Disney (DIS -1.06%) fits into the former category, while electric-vehicle (EV) charging station company Blink Charging (BLNK -1.29%) and action camera maker GoPro (GPRO -2.83%) are not great investments today.
Disney's theme parks, like Epcot, are showing signs of recovery. Image source: Walt Disney.
1. The House of Mouse pivots
The Disney story for 2020 is one that could be studied in business school classes. Essentially all of its diversified businesses were severely affected by the pandemic. Travel, movies, and sports virtually came to a sudden halt. But management didn't panic. Instead, it shored up its balance sheet, preserved cash by suspending the dividend, and accelerated its moves into streaming television.
Now, just a little more than a year after its Disney+ streaming service launched, it has almost 95 million paid subscribers. And the company reported over 146 million combined for its Disney+, ESPN+, and Hulu streaming services as of Jan. 2.
Its legacy businesses are closer to some level of recovery. As visitors return to its theme parks and cruises, and movies and sports fully resume, the company should be in a position to rebound beyond pre-pandemic levels. It's no wonder that Robinhood investors love the stock.
2. Searching for profits
Action camera maker GoPro is a Robinhood favorite as a turnaround story. Shares have dropped 38% over the last five years, while the S&P 500 index more than doubled in that time period. Sinking sales forced the company to rethink its business model, and it has been working on that transition.
GoPro has been focusing on growing its subscription base and a direct-to-consumer strategy. Subscribers grew to 761,000 at the end of 2020, 52% ahead of the previous quarter, and 145% higher than one year ago. The company said GoPro.com generated $116 million in revenue in the fourth quarter, almost double the amount of a year ago.
But part of its successful subscription growth was due to the HERO9 bundle, which allows consumers to buy the camera, with a subscription included, for $350. It is effectively discounting the $450 retail price of the HERO9 to entice subscriber growth.
Some investors have tried to get in ahead of an improvement in results. While revenue continues a downward trend, shares have begun to recover recently.
GPRO Revenue (TTM) data by YCharts. TTM = trailing 12 months.
2020 continued its string of annual net losses that started in 2015. GoPro's strategy of higher-value products and subscription services may be helping turn its business around. But investors will have to continue to wait to see if it's enough to result in a profitable year.
A Blink EV charger. Image source: Blink Charging.
3. Valuation should still matter
Anything related to EVs seems to be hot with investors right now. EV charging-station maker Blink Charging did an uplisting from the over-the-counter markets to trade on the Nasdaq exchange in early 2018. Investor interest began to grow last year, and the stock has risen more than 2,300% since the start of 2020.
The company has been growing its footprint through agreements with health networks, municipalities, EV makers, and others, but it is growing off a very low base. Sales through the first three quarters of 2020 were just $3.8 million, and the stock currently trades at a nosebleed price-to-sales ratio of almost 300.
It's understandable why retail investors are interested in EV charging networks; growth should soar if EV adoption expands globally. But competitors like ChargePoint and EVBox are larger and more established suppliers in the U.S. and Europe, respectively. Both will also be publicly available through special purpose acquisition companies (SPACs) that will soon be completing mergers with the charger makers.
The Robinhood effect
Stocks that are catching the eyes, and dollars, of retail investors are getting more publicity through brokerages like Robinhood. But not all of them should be at the top of your list for long-term investments.
Some Robinhood clients look for short-term trades or speculative bets. While there can be a properly sized place for that in a portfolio, investors should differentiate that from investments. There are several reasons Disney makes the cut as an investment, but there are better places for your money than other Robinhood favorites GoPro and Blink Charging.
