Financial services platform Robinhood Markets, Inc. (HOOD) has declined 40.3% in price year-to-date and 74.3% over the past year to close the last trading session at $10.60. It is trading 77.8% below its 52-week high of $47.84, which it hit on September 23, 2022.

HOOD allows users to invest in stocks, exchange-traded funds (ETFs), options, gold, and cryptocurrencies. The company also offers learning and education solutions, which include Robinhood Snacks, Robinhood Learn, Newsfeeds, Robinhood lists and alerts, and First trade recommendations.

Amid the uncertain macroeconomic environment, growth stocks have been hard hit. High inflation and rising benchmark interest rates have led to high uncertainty within the market. HOOD failed to surpass its consensus EPS and revenue estimates in the last reported quarter.

HOOD’s loss per share came in at $0.34, compared to consensus estimates of a loss of $0.37. Also, its revenue missed analyst estimates by 0.8% in the last quarter. Last month, HOOD announced the laying off 23% of its employees to reduce costs.

In the last reported quarter, HOOD’s Monthly Active Users (MAU) decreased by 1.90 million sequentially and by 12% year-over-year to 14 million. Moreover, its MAU has declined 34.3% year-over-year from its high of 21.30 million.

The volatile market conditions have affected the company’s Assets Under Custody (AUC). HOOD’s AUC has fallen 37.2% year-over-year and 31.2% sequentially to $64 billion. Its Average Revenue Per User (ARPU) has declined 50% year-over-year to $56. In addition, its transaction-based revenues have fallen 55.2% year-over-year to $202 million.

Here’s what could influence HOOD’s performance in the near term:

Weak Financials

HOOD’s total net revenues declined 43.7% year-over-year to $318 million for the second quarter ended June 30, 2022. Its total operating expenses increased 21.7% year-over-year to $610 million. The company’s net loss narrowed 41.2% year-over-year to $295 million. In addition, its loss per share narrowed 84.2% year-over-year to $0.34.

Unfavorable Analyst Estimates

HOOD’s EPS for fiscal 2022 and 2023 is expected to remain negative. Its revenue for fiscal 2022 is expected to decline 24.8% year-over-year to $1.36 billion.

Stretched Valuation

In terms of forward P/B, HOOD’s 1.32x is 12.6% higher than the 1.18x industry average. Likewise, its 6.84x forward P/S is 140.8% higher than the 2.84x industry average.

Weak Profitability

HOOD’s trailing-12-month ROCE is negative compared to the 11.53% industry average. Likewise, its 0.06% trailing-12-month asset turnover ratio is 67.8% lower than the industry average of 0.20%. Its trailing-12-month net income margin is negative compared to the 27.99% industry average.

POWR Ratings Reflect Bleak Prospects

HOOD has an overall F rating, equating to a Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. HOOD has a D grade for Value, in sync with its stretched valuation.

It has an F grade for Quality, consistent with its weak profitability. In addition, its unfavorable analyst estimates justify its D grade for Sentiment.

HOOD is ranked #143 out of 154 stocks in the F-rated Software – Application industry. Click here to access HOOD’s ratings for Growth, Momentum, Stability, and Sentiment.

Bottom Line

After the dream run during the pandemic when many new and young retail investors joined the market and took highly risky bets, HOOD has found it challenging to get going since the beginning of the year and lost more than 40% in price. Its Monthly Active Users (MAU), Assets Under Custody (AUC), and Average Revenue Per User (ARPU) are down significantly year-over-year.

The uncertain macroeconomic environment has led to investors pulling money out of the market. HOOD’s foray into crypto has also suffered as bitcoin and Ethereum are down more than 50% this year. With experts expecting an extended crypto winter, HOOD could remain under pressure.

The stock market is expected to remain under pressure as the Fed continues aggressive interest rate hikes. Therefore, HOOD’s business could continue to remain under stress. Given its weak financials, unfavorable analyst estimates, stretched valuation, and weak profitability, it could be wise to avoid the stock now.

How Does Robinhood Markets, Inc. (HOOD) Stack Up Against Its Peers?

HOOD has an overall POWR Rating of F, equating to a Strong Sell rating. Therefore, one might want to consider investing in other Software - Application stocks with an A (Strong Buy) or B (Buy) rating, such as Commvault Systems, Inc. (CVLT), IBEX Limited (IBEX), and Open Text Corporation (OTEX).

HOOD shares were trading at $11.13 per share on Monday morning, up $0.53 (+5.00%). Year-to-date, HOOD has declined -37.33%, versus a -13.08% rise in the benchmark S&P 500 index during the same period.

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.

More...