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Robinhood's Stock Rockets as Bank of America Sees a Retail Renaissance in Its Early Innings

May 19, 2024
minute read

Retail traders are making a strong comeback, and a BofA analyst believes this trend is favorable for Robinhood Markets Inc.

Craig Siegenthaler of BofA upgraded Robinhood (HOOD) stock from underperform to buy on Friday, asserting that the brokerage is still in the early stages of increasing retail engagement and benefiting from a demographic shift toward mobile platforms.

As a result, Robinhood shares rose over 8% in Friday morning trading.

Siegenthaler suggests that as retail engagement improves, Robinhood could see positive impacts across several metrics, including account growth, margin loans, and payment for order flow.

"Retail engagement peaked in 2021 but significantly declined through the Fed’s rate hikes and the 2022 bear market, bottoming out in 2023," Siegenthaler explained. "However, with the advent of a new bull market last year, we've observed a rebound in various metrics at Robinhood."

One such metric is the company's 44% organic growth, which Siegenthaler expects to continue into 2026.

Additionally, he noted that "operating leverage opportunity and free-cash-flow conversion are somewhat underappreciated at this newer company."

Siegenthaler had initially rated Robinhood shares as underperform in 2021. "We view the current entry point as the opposite," he stated in his Friday note, highlighting the company's revived organic growth and cost reductions that are improving operating leverage.

He also raised his price target for Robinhood to $24 from $14.

On the same day, Siegenthaler upgraded shares of Coinbase Global Inc. (COIN) from underperform to neutral.

He remarked that the cryptocurrency market is gaining momentum after peaking in 2021, and while the current market remains volatile, it appears "more robust than prior boom periods" due to a larger investor base and increased focus on "mature coins."

However, Siegenthaler also identified risks that limit the upside for Coinbase, including regulatory uncertainties and the fact that transaction revenue is still a significant profit driver.

He increased his price target for Coinbase to $217 from $110, with the stock rising nearly 3%..

In summary, the resurgence of retail traders is viewed as a positive development for Robinhood, which is poised to benefit from increased engagement and demographic shifts toward mobile trading. The company is experiencing significant organic growth and improved operating leverage, making it an attractive investment. Similarly, while the cryptocurrency market remains volatile, Coinbase is also benefiting from a larger and more mature investor base, though regulatory challenges and reliance on transaction revenue present ongoing risks.

Cathy Hills
Associate Editor
Eric Ng
John Liu
Editorial Board
Bryan Curtis
Adan Harris
Managing Editor
Cathy Hills
Associate Editor

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