6 Robinhood Stocks That May Not Be Worth Your Money

Because online stock brokerage app Robinhood helped democratize investing even further by eliminating transaction fees and offering free stocks to investors who opened a trading account, it's introduced millions of people to the best wealth generation tool around.

Yet by making stock investing dead simple, it's also allowed people to take fliers on companies that arguably might not deserve the level of support they receive on the platform.

Of the stocks that follow, not every one of them is a bad company. Some are actually quite good businesses -- they're just not worth the price people are paying for them. Valuation is an important consideration in investing.

The following six companies are good examples of Robinhood stocks that may not be worth your money.

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Movie theater giant AMC Entertainment (NYSE: AMC) is an example of a company that has a valuable business but is priced well above where it ought to trade because it got a major boost from the Reddit rally earlier this year.

There's a certain level of investor support for the world's largest cinema owner benefiting from the reopening of the economy -- and at least one Wall Street analyst says it's worth $13 a share, some 38% more upside from where it sits today -- but there remain significant concerns about its business for the foreseeable future.

Social distancing, limited seating capacity, substantial levels of debt, significant shareholder dilution, streaming video competition, and movie studio day-and-date release schedules are just some of the risks confronting AMC Entertainment that suggest its stock price is overvalued.

ALSO READ: Can These 3 Robinhood Favorites Really Be Winning Stocks?

Where AMC goes, GameStop (NYSE: GME) is there to follow. Or lead, actually, since it was the video game retailer that was the focal point for the WallStreetBets chatroom rally that swept up the theater owner and other heavily shorted stocks in its wake.

Yet like AMC, GameStop also is a business that has a future, just not at this price level. While activist investors are now firmly in control of the company and are positioning the retailer to take advantage of the digital and online future of video game play, all of that has been baked into the stock price.

Even if GameStop is down 67% from the all-time highs it hit back in January, shares still trade 740% higher than they did at the start of the year and are more than 4,500% above where they were a year ago. GameStop could be a company to bet on, but only when its shares are more grounded in reality.

Netflix (Nasdaq: NFLX) may be one of the more surprising companies on here, but in what's becoming a recurring theme, it's stock may be more elevated than warranted.

The streaming video giant is facing more viable competitive threats than it has in the past and is needing to spend more money than ever on obtaining original content since more studios are pulling video libraries from its platform to bolster their own streaming services. A just-announced deal with Sony is believed to have cost significantly more than what Lions Gate Entertainment's Starz division had paid before the studio switched platforms.

Analysts are beginning to think the robust growth Netflix secured during the pandemic may be waning, and one thinks subscriber growth will begin to ebb. The streaming service's stock is seen more as fairly priced than undervalued, which would make it not worth the effort for an investor to buy in at this level.

Peloton Interactive (NYSE: PTON) may have squandered a rare opportunity to really cement its lead in at-home fitness equipment by not having the capacity in place to meet demand. While it couldn't have foreseen that a global pandemic would force people to stay at home and turn to home-based equipment to work out, the massive delays that ensued -- and continue till this day, though at much reduced rates -- have given competitors like Nautilus an opportunity to gain ground.

The equipment maker, though, has responded by making acquisitions to increase capacity, as well as building out its own facilities, while also exploring new opportunities in artificial intelligence and wearables. It seems to have good long-term prospects ahead of it, but even with its stock down 30% from recent highs, it may still be too lofty for those wanting to see whether it can keep up the growth trajectory in a post-pandemic world.

ALSO READ: 3 Robinhood Stocks With the Most Projected Downside, According to Wall Street

Cryptocurrency miner Riot Blockchain (Nasdaq: RIOT) was another stock swept along by the wave of Reddit investor enthusiasm --and also because of the mania surrounding Bitcoin that has seen the cryptocurrency double in value in just the last three months.

Because Riot uses muscular computing power to validate Bitcoin transaction groups called blocks, its own worth increases because it is paid in the cryptocurrency for its work. That means the more Bitcoin rises, the greater its business valuation becomes.

Yet that reliance also carries with it significant risk because nothing goes up forever and Bitcoin has suffered several steep deflationary events. Even if the cryptocurrency's valuation doesn't crater, its rise could stall and the price stagnate.

Being so closely tied to any one particular thing -- whether it's a cryptocurrency, a customer, or a vendor -- always entails significantly more risk than more diversified businesses, making a Riot Blockchain investment not worth your money, especially at these elevated levels.

5 Winning Stocks Under $49
We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by the Motley Fool. I’d be sitting on a gold mine!” And it’s true. And while Amazon and Netflix have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Simply click here to learn how to get your copy of “5 Growth Stocks Under $49” for FREE for a limited time only.

Tesla (Nasdaq: TSLA) may not be worth as little as the $150 price tag one analyst recently put on it, but the rest of his argument --that the electric-car maker's valuation is completely detached from the fundamentals of the business -- is food for thought. "People are just assuming that Tesla has no competition when they put this kind of lofty valuation on the company," Roth Capital analyst Craig Irwin recently told CNBC.

Moreover, the analyst feels that, to justify Tesla's current valuation, the company needs to dramatically expand its product offerings, particularly since it does have competitors -- a lot of them, in fact -- and they're introducing "vastly superior technology."

Of course, some analysts still see the EV maker as very undervalued in light of its recent deliveries numbers, which handily beat Wall Street expectations. If Congress follows through on analyst speculation of vehicle delivery caps and increases in credits for purchasing EVs, that could push the stock even higher.

Although investors need to look to the future and what might be, basing investment decisions on what-if scenarios is counterproductive and could result in substantial losses of capital if the proposals fall through. Tesla stock at its current price point does seem to have all the superlatives of its business baked in and then some.

The millennial investors who've flocked to Robinhood tend to be new investors and may see the stock market as more of a way to swing big on stocks. Many recently used the Reddit rally of January to try and score profits to pay off debt.

With worse credit scores than investors at most other brokerages, Robinhood investors would do well to slow down, evaluate the companies they want to buy, and stick with good stocks at reasonable valuations.

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Bitcoin, Netflix, Peloton Interactive, and Tesla. The Motley Fool has a disclosure policy.