It's been a fantastic year for stock market investors. At the time of this writing, the S&P 500 index has returned 28% thus far in 2024 amid a resilient macroeconomic backdrop and record corporate earnings.
The scenario has been great news for Robinhood Markets (HOOD 3.84%), which has emerged as a big winner in this bull market. Shares of the online brokerage and financial services platform are up roughly 200% year to date, propelled by a sharp rebound in customer trading activity and accelerating profitability.
The recent trends have been positive, but is that enough to keep the rally going? Let's consider what to do now with Robinhood Markets stock.
The case to buy or hold Robinhood
Robinhood began trading as a public company in July 2021 at $38 per share. The company's innovative user interface with commission-free trading on stocks, exchange-traded funds, and options proved to be highly popular during the pandemic-era economic boom.
On the other hand, the company struggled through the ensuing stock market sell-off, as client transactions declined sharply. The stock fell to a low of $6.89 in 2022 as financial losses mounted. Among the concerns was the viability and ethical propriety of the company's business model, in which it sold customer trade orders to market makers for execution. Selling these orders was critical to the company's ability to offer consumers no-commission trading.
The good news is that the latest data suggests Robinhood has put together quite the turnaround. The stock recently climbed above the $38 price at its initial public offering for the first time since late 2021, with the company gaining traction from a more diversified lineup of financial services.
Image source: Getty Images.
In the third quarter, total net revenue climbed by 36% year over year, with transaction-based revenue leading growth, up 72% from the prior year quarter. Robinhood has added 1.1 million new funded accounts with the current 24.3 million surpassing the prior second-quarter 2021 record. The level of assets under custody at $152 billion is also at an all-time high, benefiting from higher asset prices including a resurgence in cryptocurrencies.
A major theme for Robinhood this year has been its ability to win over larger clients who are more active traders, with its new advanced features. Beyond the increased trading, the company is benefiting from traction in products like credit cards and its premium Gold subscription service. The result is earnings per share (EPS) of $0.17 this quarter, reversing a loss of $0.09 in 2023's second quarter.
There's optimism that the momentum will continue. According to Wall Street estimates, Robinhood is forecast to achieve 45% annual revenue growth this year while EPS more than doubles from 2023 to $1.11. For 2025, earnings growth is projected to normalize toward a still-solid 12%.
Ultimately, investors who are confident in Robinhood's long-term opportunity have plenty of reason to buy or continue holding the stock now.
| Metric | 2023 | 2024 Estimate | 2025 Estimate |
| Revenue | $1.9 billion | $2.7 billion | $3 billion |
| Revenue change (YOY) | 37% | 45% | 12% |
| Adjusted EPS | $0.49 | $1.11 | $1.24 |
| Adjusted EPS change (YOY) | N/A | 127% | 12% |
Data source: Yahoo Finance. YOY = year over year.
The case to sell shares of Robinhood
There's a lot to like about Robinhood, but it's important to consider what could go wrong. One uncertainty stems from the intensely competitive landscape among brokerages and fintechs.
Consumers and active traders have many alternatives to choose from with similar functions. Commission-free trading, once seen as a disruption in the industry, is now available on many larger trading platforms. In cryptocurrencies, Robinhood is up against specialized players like Coinbase Global and even Block, which also offer trading and wallets with a suite of competing fintech services.
The other consideration is that shares of Robinhood are trading at a forward price-to-earnings ratio (P/E) of 38. This level appears pricey, at least next to traditional peers like Interactive Brokers and Charles Schwab, which trade at an average forward P/E closer to 27.
Investors who are skeptical whether Robinhood is differentiated enough to meaningfully capture market share could consider avoiding or selling the stock.
HOOD PE ratio (forward) data by YCharts.
Decision time: I'm cautiously bullish on Robinhood
While a repeat of its huge 2024 rebound rally is unlikely, I believe the outlook for Robinhood Markets is strong enough to support a higher stock price by this time next year. Investors with realistic expectations and a willingness to stomach some potential stock market volatility can find a place for it within a diversified portfolio.
