This firm is leveraging its digital-native roots to draw the following era of customers.
The S&P 500 (^GSPC -0.05%) is broadly accepted as probably the most complete benchmark of the U.S. inventory market, made up of the five hundred main publicly traded corporations within the nation. Given the intensive attain of the companies that make the index, it’s considered probably the most dependable measure of total inventory market efficiency. To be granted admission to the S&P 500, an organization should meet the next circumstances:
- Be a U.S.-based firm
- Have a market cap of not less than $22.7 billion
- Be extremely liquid
- Have not less than 50% of its excellent shares out there for buying and selling
- Have to be worthwhile primarily based on usually accepted accounting rules (GAAP) in the newest quarter
- Have to be worthwhile over the previous 4 quarters mixed
Robinhood Markets (HOOD -2.29%) is the most recent addition to the S&P 500, scheduled to hitch the benchmark on Sept. 22. That makes it one in every of solely 10 corporations to be granted admission thus far this yr.
Since its preliminary public providing (IPO) in mid-2021, Robinhood has soundly thrashed the broader market, producing good points of 237%, in comparison with simply 48% for the S&P 500 (as of this writing). The inventory value good points have been fueled by its robust underlying fundamentals, as income has jumped 169% and internet earnings has risen 1,440% — regardless of struggling earnings in the course of the COVID-19 pandemic.
But, regardless of the inventory’s strong good points and the corporate’s accelerating monitor file of progress, many imagine the runway forward is lengthy for Robinhood. Let’s view the chance forward and dig into why Wall Avenue considers the inventory a purchase, regardless of its seemingly premium valuation.
Picture supply: Getty Photos.
Taking inventory
Investing was as soon as the area of the wealthy and well-known, however over the previous few a long time, retail traders have come into their very own. Shares not commerce in blocks of 100, commissions on trades have largely vanished, and investing platforms are simply accessible to anybody with an web connection.
That is the place Robinhood is available in. The corporate was based on the concept “everybody needs to be welcome to take part in our monetary system.” The platform’s digitally native design, ease of use, and near-universal accessibility have fueled Robinhood’s fast ascent, as the corporate now instructions roughly 6.5% of the general market, in keeping with CSI Market, regardless of competitors from bigger, well-heeled rivals.
Robinhood has laid out a three-pronged technique for driving progress. The corporate’s buying and selling platform covers equities, choices, cryptocurrency, prediction markets, index choices, and futures buying and selling, thereby attracting lively merchants. It is also targeted on incomes extra of every consumer’s pockets share. Lastly, Robinhood is increasing the breadth of its monetary ecosystem, including new options, merchandise, and providers.
The numbers inform the story
Robinhood’s most up-to-date outcomes recommend this technique is paying off. Within the second quarter, income grew 45% yr over yr to $989 million, leading to a 100% surge in earnings per share (EPS) to $0.42.
The outcomes had been pushed greater by transaction-based income that jumped 65% to $539 million, fueling common income per consumer (ARPU) that elevated 34% to $151.
Underpinning the monetary outcomes had been equally strong operational metrics:
- Robinhood’s funded buyer base elevated to 26.5 million, up 10% yr over yr.
- Subscribers to Robinhood Gold, its premium tier, soared 76%.
- Complete platform belongings reached $279 billion, a 99% surge.
- Web deposits of $13.8 billion climbed 4%.
The success of software-as-a-service (SaaS) corporations — together with Robinhood — is usually measured utilizing the Rule of 40, which gauges the stability between income progress and profitability. Any quantity above 40% is taken into account wholesome, so Robinhood’s rating of 112% is great.
The fintech firm continues to broaden its monetary providers choices, in addition to its geographical footprint, which helps to focus on the attain of Robinhood’s future progress alternatives.
Wall Avenue is bullish
Robinhood inventory has surged 497% over the previous yr, however Wall Avenue stays bullish. Of the 23 analysts that coated the inventory up to now in September, 14 fee it a purchase or robust purchase, 7 label it a maintain, and two maintain a score of underperform.
Bernstein analyst Gautam Chhugani is among the many most bullish, sustaining a purchase score and $160 value goal on the inventory, which suggests further upside of 36% for traders, in comparison with the inventory’s closing value on Wednesday.
The analyst says the corporate has constructed the very best “mousetrap” with its buying and selling enterprise and is “constructing probably the most developed multi-asset monetary super-app, leveraging expertise.” The analyst goes on to say that he believes Robinhood will evolve right into a monetary providers chief for the “new era.”
Robinhood inventory seems exorbitantly costly at first look, promoting for 55 instances subsequent yr’s earnings and 22 instances subsequent yr’s gross sales. This helps for example a standard conundrum, as probably the most generally used valuation metrics battle to adequately worth high-growth corporations, and Robinhood is not any totally different. Nevertheless, when measured utilizing the extra applicable value/earnings-to-growth (PEG) ratio, the a number of is available in at 0.34, and any quantity lower than 1 is the usual for an undervalued inventory.
Given its three-pronged progress technique, robust execution, and Wall Avenue’s bullish take, I’d submit that Robinhood inventory is a purchase forward of its admission to the S&P 500.
