HOOD stock will rebound dramatically once crypto prices stop falling
Robinhood Markets (NASDAQ:HOOD) had several difficult months. Since October 26, when the company released its third quarter results, HOOD stock has gone from $ 39.57 to $ 15.75 as of January 7. This represents a drop of just over 60%.
One possible reason for the decline is that the company had a lower quarter in terms of revenue and profit growth compared to the previous quarter. But the most likely reason is that crypto trading made up a large chunk of his revenue in the second quarter. And the cryptocurrency market hasn’t been doing very well lately.
As a result, HOOD stock appears to be highly correlated with the price of cryptocurrencies in general.
Where are things at Robinhood?
Now, as its latest third quarter results released on October 26 show, crypto transactions have fallen significantly from the previous quarter. For example, cryptocurrencies in the third quarter were much lower than in the previous quarter. Here’s what the company said about it:
“Crypto activity has declined from record levels in the previous quarter, resulting in a dramatic decrease in new funded accounts, a slight decline in cumulative net funded accounts, and lower revenue in the third quarter of 2021 compared to second quarter of 2021. “
Revenue fell from $ 565 million in the second quarter to just $ 365 million in the third quarter. Additionally, cryptocurrency revenue fell from $ 233 million in the second quarter to just $ 51 million in the third quarter. This is a dramatic drop in crypto trading, as the company has said. It seems Robinhood is in desperate need of a huge increase in crypto trading to make a lot of money.
Therefore, don’t expect HOOD stock to rise anytime soon, unless it becomes clear that crypto trading is rebounding. For example, the stock continued to decline throughout the quarter as it became clear that all of the major cryptos were faltering.
For example, since October 26, Bitcoin (CCC:BTC-USD) went from $ 60,243 on October 26 to just $ 41,641 on January 7. This is a drop of $ 18,602 for the largest cryptocurrency on the market – a drop of 44.7%.
In addition, Ethereum (CCC:ETH-USD) fell from $ 4,241 on Oct. 26 (when results were released) to just $ 3,169 as of Jan. 7. This represents a decrease of 25.3% during this period.
Where that leaves HOOD Stock
There is simply no way the HOOD stock could go up during such a terrible cryptocurrency storm. And that largely explains the 60% drop in HOOD stock.
In fact, what we can conclude from this is that Robinhood acts more as a leveraged option on the direction and performance of cryptocurrency prices. Its gains and losses will be greatly amplified compared to the performance of cryptos.
By the way, this also works on the upside.
Once crypto prices start to rebound, you can expect to see HOOD stock soar. The reason for this is that the company can be expected to take on new accounts, a lot more transactions than usual, and most of them will be done with crypto. This will make Robinhood very profitable and the market will move quickly to drive the stock up accordingly.
Essentially, investors want to be the first to take advantage of the windfall when it happens.
What to do with HOOD Stock
Analysts are not sure what to recommend on this stock. The average analyst interviewed by In search of the alpha has a target price of $ 37.38. This represents a potential increase of 137% from the current price. This also represents a rebound where the stock was around October 26 when the third quarter results were released.
But what do these analysts know more than anyone else about crypto price trends? Not a lot.
On the contrary, they will be late and will be more responsive to prices than anticipated.
For this reason, it probably means that now is the time to start hoarding HOOD stocks. By the time it is evident that crypto prices are going up, the Robinhood stock price will be significantly higher. You will not be able to enter at a good price.
As of the publication date, Mark Hake does not hold (directly or indirectly) any positions in any of the stocks mentioned in this article. The opinions expressed in this article are those of the author, subject to the publication guidelines of InvestorPlace.com.
Mark Hake writes about personal finance on mrhake.medium.com and run the Total Value of Return Guide that you can consult here.