Robinhood Markets (HOOD +0.12%) reports its latest earnings numbers tomorrow, and the stock could use a boost. Entering trading on Monday, shares of Robinhood were down 22% since the start of the year. Despite posting some strong growth in recent quarters, the stock has been coming under some significant pressure of late.
What is behind the stock's recent downturn, and could there be more trouble ahead for Robinhood, or could this be an ideal time to load up on the growth stock?
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Could Bitcoin be to blame for Robinhood's struggles?
Robinhood's trading platform makes it easy for people to buy and sell stocks, and also crypto, which has been a huge growth catalyst for its business. When the company last reported earnings in November, it experienced 129% growth in transaction-based revenues, with cryptocurrencies being a huge part of that. Cryptocurrency-related revenue rose by a staggering 300%.
Perhaps unsurprisingly, then, as Bitcoin has fallen sharply in value this year, Robinhood has struggled as well. There has historically been a strong correlation between the value of Bitcoin and Robinhood's stock performance, as is evident in the chart below.
If there's been a softening in the cryptocurrency markets, that may not bode well for trading levels on Robinhood's platform, and investors may be adjusting their expectations accordingly.
Has the stock become a cheap buy?
Robinhood's sudden decline in value has brought it down to a more reasonable valuation. Currently, it's trading at a price-to-earnings multiple of around 37. While that isn't terribly low, it's far lower than the 70 times earnings it has traded at in the past.
For a company that's growing at such a fast and feverish pace, and with some exciting opportunities in the prediction markets, some premium is arguably justifiable for Robinhood's stock. An earnings multiple of less than 40 could be attractive for a business that has been doubling its sales.
NASDAQ: HOOD
Key Data Points
If Robinhood's upcoming quarterly results prove to be stellar, they could quickly turn the stock's fortunes around. The company has a young, growing user base, and with it still experiencing tremendous growth, it can make for a solid long-term investment to buy and hold.
Investors shouldn't be concerned about its recent slide in value, as it could make for a great buying opportunity right now. There is still some risk around the stock given its high price tag, and so you may want to wait until the company reports its latest earnings numbers before making a decision on the stock. However, I expect it to be another strong quarter for the business.
