Online exchange Robinhood Markets’ (HOOD) stock is up more than 80% this year and has plenty of upside as a play on the rising wealth of younger generations such as Millennials.
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Robinhood and its trading app are extremely popular with young retail investors. The exchange has boomed this year as both equities and crypto prices hit all-time highs. The company has done a good job of attracting and retaining customers with expanded offerings that now include credit cards. The company and its stock are positioned to continue growing alongside the wealth of its users. For these reasons, I’m bullish on HOOD stock.
Rising Tide Should Lift Robinhood’s Boat
One of the main reasons I’m bullish on Robinhood Markets is the company’s unique role within the trading and financial services sector. Research firm Bernstein reports that about 65% of Robinhood’s assets are held by customers under the age of 43. And their wealth is growing. In 2010, Millennials accounted for just 1% of U.S. household wealth. But this percentage has grown significantly over the past decade and now stands at 10%. Millennials’ wealth should continue to increase as that generation enters its prime earning years and older generations, such as Baby Boomers and Generation X, begin to retire.
Robinhood has made a concerted effort to target a younger demographic with its trading app and exchange. The company has accomplished this largely by diversifying and offering new products. These include a new “Gold” subscription membership that provides 5% interest on cash balances and a 1% bonus to customers who transfer their Individual Retirement Accounts (IRAs) to Robinhood.
Robinhood has also expanded into credit cards that offer 3% cash back on most purchases. These efforts are succeeding at attracting customers and growing the business in the process. The company’s latest results showed that Robinhood had 24.3 million funded accounts at the end of August this year, up nearly one million from a year ago. Assets under custody grew by 60% from a year earlier to $143.6 billion. In this year’s second quarter, Robinhood took in a record $13 billion in deposits as the stock market boomed.
Winning with Crypto
Robinhood Markets is also a bullish bet because of its involvement with cryptocurrencies. The company remains a popular choice for younger investors who are interested in crypto such as Bitcoin (BTC) and Ethereum (ETH). In fact, Robinhood has established itself as a one-stop shop where users can invest in equities as well as crypto. The recent acquisition of crypto exchange Bitstamp should enable Robinhood to expand its crypto offerings, branching out into new areas such as staking and lending.
The embrace of cryptocurrencies has and will continue to serve Robinhood well with its core user base of younger investors. Bernstein data shows that nearly half of crypto investors are under the age of 34 and that crypto is the preferred asset class for 55% of Generation Z investors. After slumping throughout the summer months, crypto prices are on the rise again after the U.S. Federal Reserve lowered interest rates by 50-basis points. Bitcoin, the largest cryptocurrency by market capitalization, is back above $60,000 per token and trending higher.
The combination of both stocks and crypto have fueled Robinhood’s growth and made the company increasingly profitable. While nobody would mistake Robinhood for a value stock, it has turned the corner from unprofitability and steadily grown its earnings per share (EPS) over the past three quarters. Analysts forecast that the company will earn $0.72 a share this year.
Is HOOD Stock a Buy According to Analysts?
Turning to Wall Street, HOOD stock has a Moderate Buy consensus rating among 16 professional analysts. This rating is based on eight Buy, seven Hold, and one Sell recommendation made in the past three months. The average HOOD stock price target of $23.35 implies 2.41% upside from current levels.
Read more analyst ratings on HOOD stock
Conclusion: Hood is a Strong Long-Term Play
I’m bullish on Robinhood Markets based on its popularity with younger investors, which positions the company for long-term growth. Robinhood has done an excellent job of attracting users to its platform with compelling products, which can be seen in the rise of its funded accounts and growth of its assets under custody. The company is also profitable and has increased its earnings in successive quarters. Add it all up and HOOD stock makes for an attractive long-term investment.
