Skip to main content

Robinhood Stock: 3 Reasons the Worst Is Yet to Come

Robinhood stock recently hit all-time lows. With an earnings release slated for later this month, the worst may be yet to come for HOOD.

Shares of commission-free broker Robinhood  (HOOD) - Get Robinhood Markets, Inc. Class A Report recently hit all-time lows. In addition to bearish factors like growth misses, fierce competition, and a loss of customers, an unfriendly macroeconomic backdrop and even unfavorable lawsuits have driven the stock to the bottom.

Yet with earnings season approaching, we here at Wall Street Memes fear things might get even worse for HOOD.

Figure 1: Robinhood's trading app gadget.

Figure 1: Robinhood's trading app gadget.

(Read more from Wall Street Memes: Is Bed Bath & Beyond Stock The Next Short Squeeze?)

1. Higher Interest Rates Are Coming

In order to curb growing rates of inflation, the U.S. central bank is expected to raise interest rates in March. As a result, investors could bail out of growth stocks and cryptocurrencies and instead flock to investments that benefit from higher interest rates, such as Treasurys.

That means, while Fed rate hikes are good news for banks, the brokerage industry could suffer.

Wall Street firms such as Deutsche Bank, KeyBanc, and Goldman Sachs have recently lowered their price targets for Robinhood based on the fact that HOOD is an interest rate-sensitive stock.

2. The Meme-Stock Lawsuit Floodgates Have Opened

Robinhood has been ordered to pay nearly $30,000 in compensatory damages to a retail investor. The 27-year-old investor had filed a complaint in May 2021 about having suffered significant losses due to Robinhood's decision to restrict trading on certain "meme" stocks in January 2021.

The plaintiff's lawyer, Jorge Altamirano, told reporters that the cash award is significant and provides an example for other retail investors to take Robinhood to task.

It's likely this will be the first of many lawsuits won by retail investors related to Robinhood's meme-stock trading restrictions in January 2021. Robinhood could be headed for a lot of legal pain.

3. Fourth-Quarter Earnings Are Just Around the Corner

On January 27, Robinhood's will release its fourth-quarter 2021 results. The Wall Street consensus expects a 26-cent loss per share.

Interestingly, that's the same forecast Wall Street assigned to the company's second-quarter results. However, back then, Robinhood surprised analysts by announcing a gain of 44 cents, thanks largely to increased cryptocurrency trading.

Figure 2: Robinhood EPS surprise and estimates by quarter.

Figure 2: Robinhood EPS surprise and estimates by quarter.

However, Robinhood is unlikely to pull that off again. In the third quarter, Robinhood's cryptocurrency revenue plunged from $223 million to $51 million.

That decrease led the company to lower its overall revenue guidance for the fourth quarter to $325 million.

The Bottom Line

Investors had high hopes for Robinhood when it debuted on the stock market last year. However, a slew of negative factors have led its stock to crater nearly 60% from its all-time high. Unfortunately, it looks like there may be even more losses for the stock ahead.

(Read more from Wall Street Memes: CEO Adam Aron Sells AMC Stock. Should Shareholders Care?)

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Wall Street Memes)