Robinhood Markets (HOOD 3.27%) and Circle Internet Group (CRCL +1.21%) have been hammered as investors have soured on cryptocurrency. Shares are down 50% and 75%, respectively, from record highs.
Hedge fund billionaire Israel Englander bought the dip in the fourth quarter. Neither stock is a large position in his portfolio, but the trades are noteworthy because certain Wall Street analysts think Robinhood and Circle are deeply undervalued.
- Brian Bedell at Deutsche Bank and Gautam Chhugani at Bernstein have set Robinhood with a target price of $160 per share. That implies 113% upside from its current share price of $75.
- John Todaro at Needham and Gautam Chhugani at Bernstein have set Circle with a target price of $190 per share. That implies 206% upside from its current share price of $62.
Here's what investors should know.
Image source: Getty Images.
1. Robinhood Markets
Robinhood operates an online trading platform designed for younger investors. With nearly twice the number of millennial and Gen Z accounts as its closest competitor (Vanguard), the company is well positioned for growth as the population matures. Millennials and Gen Z are forecast to inherit over $100 trillion in assets from baby boomers in coming decades.
Robinhood is already gaining market share in most brokerage service categories, including cryptocurrency, equities, margin lending, and options. Also, the company has rapidly gained share in prediction markets, which rank as its fastest-growing product line by revenue. Until recently, Robinhood only partnered with prediction exchanges like Kalshi, but it has since doubled-down on the opportunity by acquiring its own exchange.
Robinhood is also trying to capitalize on the artificial intelligence (AI) boom with Cortex, an investing assistant that summarizes market news, analyst ratings, and research reports. Cortex is exclusively available to users with a Gold membership, which costs $5 per month or $50 per year. "Our goal is for Robinhood to give you a world-class financial team in your pocket, with cutting-edge tools you can't find anywhere else," said CEO Vlad Tenev.
Robinhood stock is down 50% from its high, partially because cryptocurrency transaction volume dropped in the fourth quarter as investors have become overwhelmingly bearish. But Wall Street expects adjusted earnings to increase at 20% annually through 2027, and that makes the current valuation of 36 times earnings look reasonable.
I doubt Robinhood will deliver triple-digit returns during the next year, unless investor sentiment surrounding cryptocurrency improves substantially, but the current valuation is still an attractive entry point for long-term investors. Among 28 analysts, the stock has a median target price of $129 per share, which implies 72% upside from the current share price of $75.
NASDAQ: HOOD
Key Data Points
2. Circle Internet Group
Circle is a fintech company that mints stablecoins and provides developer tools that let businesses integrate blockchain payments into applications. The company is best known for USDC, a stablecoin that tracks the U.S. dollar. While it is the second-largest stablecoin by market value, it is the largest stablecoin that fully complies with regulations in the U.S. and Europe.
Circle primarily earns revenue from interest on reserve assets (i.e., the fiat currency held in reserve to back its stablecoins). But the company has expanded into payments with the Circle Payments Network (CPN), which is designed to be faster and cheaper than traditional cross-border payment systems. Multinational companies may find the CPN particularly valuable for payroll, supplier payments, and treasury management.
Presently, the stablecoin market is worth about $315 billion. But several experts estimate that figure will soar to $2 trillion by 2030, which implies annual grow of 45%. Some experts are even more optimistic. U.S. Treasury Secretary Scott Bessent thinks the stablecoin market could hit $3 trillion by 2030, implying annual growth of 57%.
In November, Circle estimated USDC in circulation would increase at 40% annually over the next several years, which suggests reserve income (i.e., revenue from interest) could grow faster than 30% annually during that period. But total revenue could increase more quickly if the CPN gains traction as a cross-border payment system.
Wall Street estimates revenue will increase at 33% annually through 2027, which makes the current valuation of 5.8 times sales look quite reasonable. I doubt the stock will deliver triple-digit returns in the next year unless market sentiment on cryptocurrency improves. But the stock appears undervalued. Among 27 analysts, Circle has a median target price of $107 per share, implying 73% upside from the current share price of $62.
