Robinhood Inventory Faces Headwinds as SEC Weighs in By TipRanks

Inventory buying and selling platform Robinhood (NASDAQ:) has been making headlines.

The corporate took a success with some stories out from the SEC (Securities and Change Fee) about a few of its working practices.

When the SEC begins taking discover, it is seldom a superb signal, and that is why I am reasonably bearish on Robinhood. (See Analysts’ Prime Shares on TipRanks)

Taking a look at Robinhood inventory because it went public in late July is like trying on the blueprint of a slightly thrilling roller-coaster.

There’s one massive climb as the corporate higher than doubles its worth within the area of late July to early August. Then, very like that roller-coaster, there is a plunge, a slight climb, one other plunge, and a collection of dips and hills.

That is when the SEC took a hand within the recreation. Late final week, Robinhood filed an modification to an already-amended assertion with the SEC. This modification principally referred to as for the SEC to rush issues alongside and permit gross sales to happen in accordance with the sooner assertion, which has been titled “Resale S-1.”

It is a number of bureaucratic language to wade by way of. The gist of it’s that the SEC is taking elevated discover of Robinhood. Which will harm the platform’s means to let customers really use it.

Wall Road’s Take

Wall Road consensus evaluation calls Robinhood a Average Purchase. Based mostly on the projections of 13 analysts which have 12-month value targets on the corporate issued within the final three months, seven think about it a Purchase. 5 name it a Maintain, and one analyst has it categorised as a Promote.

The typical Robinhood value goal occupies a reasonably broad vary. The present common goal is $53, with a excessive goal of $68, and a low goal of $35.

Robust Competitor with Critical Issues

Give Robinhood some credit score for enchancment within the final couple of months.

Its transfer to convey 24/7 telephone help to its operation means excessive marks from customers. It additionally helps that the corporate affords IPO Entry. IPO Entry permits individuals a possibility to purchase the businesses of tomorrow at comparatively decrease costs. Its fractional share purchases, and entry to cryptocurrency buying and selling additionally give it an edge out there.

Nonetheless, Robinhood appears to be the SEC’s whipping boy of selection currently. Considered one of Robinhood’s key income streams, often known as “fee for order move,” is in jeopardy. Cost for order move, or PFOF, permits brokerage companies like Robinhood to be paid in the event that they route orders to totally different locations. If the SEC places its foot down on such practices, that is a blow to Robinhood’s money move.

What’s extra, that cryptocurrency buying and selling that Robinhood is partaking in can be coming below SEC scrutiny. If these markets turn into more and more regulated, an enormous slug of Robinhood’s income — about 41% within the second quarter alone — might be in danger.

That is an terrible lot of worries in a single place. That makes Robinhood a good greater danger than its fundamentals ought to recommend. Throw in the truth that it is a very latest competitor to a really crowded market, and that places Robinhood even farther on the again foot.

Concluding Views

Robinhood is, objectively, a strong operation. It has loads of worthwhile options. Robinhood easily combines inventory and crypto buying and selling below one roof, which is useful.

Robinhood has a number of room to enhance, and loads going for it. Nonetheless, till the SEC pulls the highlight it is positioned on Robinhood some place else, it is arduous to be very bullish on Robinhood in any respect.

Disclosure: On the time of publication, Steve Anderson didn’t have a place in any of the securities talked about on this article.

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