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Is Robinhood a Good Stock for Long-Term Investors to Buy Right Now?

By Rachel Warren, Toby Bordelon, and Connor Allen – Dec 8, 2021 at 8:00PM

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Three investors discuss.

Robinhood (HOOD -0.81%) is a popular investing platform known for its easy-to-use interface and commission-free trading. The company held its initial public offering in July, but it hasn't been smooth sailing in the months following. In this segment of Backstage Pass, recorded on Nov. 1, Fool contributors Connor Allen, Rachel Warren, and Toby Bordelon respond to a member's question and share their personal takes on investing in this stock. 

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Connor Allen: I'd love to hit on Vihaan's other question about Robinhood.

Rachel Warren: Yeah, go for it.

Allen: He said, "Got Robinhood at IPO for Robinhood at $38, about 2%. Then it peaked at $85 with meme play, I could not sell as I have 30-day obligation with Robinhood. 10% down now at $34. Any advice for HOOD shareholders?"

Robinhood is a company for me that has too many risks for me to get invested in it. I know a lot of people love it, they're democratizing finance, I get that. I get their mission statement and it is powerful, I believe that they are trying to do that.

But receiving payment for order flow is a risk, and also they have a large meme risk. Yesterday, for example, [laughs] there's a new coin that came out. It is part of the big meme universe, it was Squid Game coin. I don't know if either of you all have watched that show. [laughs] The Squid Game coin was around $0.30 and it went up 250,000% in a matter of hours.

Then it comes back down and it's less than $0.01. You'll see that and you understand that some stocks may be in that meme universe. Yeah, it is a company beneath it all, it's a company beneath the meme, but the meme still affects the stock price. It's something I stay away from, but that's my personal advice.

Warren: That's great. I think I saw that news story about the Squid Game crypto. I didn't even know there was such a thing, so that blew my mind. [laughs] Yeah, I agree, the business model. I personally use Robinhood as my platform to buy and sell stocks on.

Obviously from an investor's perspective, it's been incredibly user-friendly, it's great if you're a newer investor. In investing in the business though, I think that's definitely a little bit more questionable.

Toby, did you have thoughts on this?

Bordelon: Not a whole lot that you guys haven't already said. If you think about how to make money as a broker, it typically used to be commissions, but that's gone away now because there were no fee commissions.

Order flow's a big thing now. You can also make a lot of money, same way that banks do, you have the account, you can lend securities out, there's a fee for that.

You can offer add-on services to your customers. Financial advice, maybe selling research, all kinds of things you can do, right? But Robinhood doesn't really have that yet because they're so new, they don't have the base of accounts yet. So, I think Connor's right, there is that risk if order flow payments go away or get reduced or restricted, it's hard to see how they could quickly jump to something else with their smaller base.

Eventually they might get there. But, it's a hard industry, I think, to break into with a low base of customers. You need to grow fast, you need to grow your customers who have a lot of net worth to offer them value-added services.

I would tread carefully with them. Not that it's a bad investment. It is risky, and so you size that appropriately. You don't say I'm putting 50% of my portfolio into this. I wouldn't. But if you love it, then hey, why not.

Connor Allen has no position in any of the stocks mentioned. Rachel Warren has no position in any of the stocks mentioned. Toby Bordelon has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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