Robinhood Stock Down 29% in April – Time to Buy HOOD Stock?

Robinhood stock is down nearly 29% so far this month while the stock is dropping 4% this morning in early stock trading action after the company announced that it will be letting go 9% of its full-time staff.

In a blog post published yesterday after the market close, the Chief Executive Officer of the popular trading platform said that the decision came upon assessing the company’s organizational structure as the management found “duplicate roles and job functions” following the rapid headcount growth that took place during the pandemic.

Back in 2020 and during the first couple of quarters of 2021, trading volumes for the Menlo Park-based brokerage firm surged as millions of beginner investors flocked to the platform with the expectation of making some extra cash by speculating in the financial markets.

“After carefully considering all these factors, we determined that making these reductions to Robinhood’s staff is the right decision to improve efficiency, increase our velocity, and ensure that we are responsive to the changing needs of our customers”, stated CEO Tenev in regards to the lay off.

The announcement is coming out only a day before Robinhood (HOOD) releases its financial results covering the first quarter of the 2022 fiscal year.

According to the firm’s estimates, net revenues during the first three months of 2022 are expected to land below $340 million resulting in a 35% year-on-year decline compared to the same period a year ago.

Meanwhile, the company estimates that its operating expenditures during the entire fiscal year, excluding share-based compensation, should be 15% to 20% lower than the figure reported in 2021

What could be expected from this fintech stock following these latest developments? In this article, I’ll be assessing the price action and fundamentals of Robinhood stock to outline plausible scenarios for the future.

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Robinhood Stock – Technical Analysis

The price of Robinhood stock has declined almost 46% since 2022 started as negative sentiment in the marketplace amid an expected shift in the macroeconomic environment and uncertainty resulting from the situation in Ukraine have weighed on the valuation of equities.

Companies such as Robinhood, whose fundamentals and business model are still relatively weak, the market has reacted drastically as risk premiums have skyrocketed as a result of the above-mentioned factors.

Today’s decline is pushing HOOD to all-time lows at $9.7 per share. However, despite the significance of yesterday’s news, trading volumes remain in line with the stock’s 10-day average.

Meanwhile, momentum indicators are favoring a short-term bearish outlook as the Relative Strength Index (RSI) is standing at 35 while the MACD has drifted to negative territory and remains below the signal line.

Moving forward, if Robinhood remains below the $10 level and a move above this marker is rejected, chances are that the downtrend will accelerate. One potential catalyst for this sharp downward move could be disappointing quarterly results tomorrow.

The price of options expiring this week indicates that the market is expecting a 15% move in HOOD stock following the release of the company’s financial report.

Robinhood Stock – Fundamental Analysis

Last year, Robinhood reported net revenues of $1.82 billion and net losses of $3.69 billion. During that same period, the company burned around $950 million in cash and had around $2.2 billion in outstanding convertible preferred shares – which are considered mezzanine equity.

According to yesterday’s press release, the firm still has around $6 billion in cash, meaning that Robinhood is not facing any challenges in terms of its solvency.

Estimates from analysts indicate that Robinhood could produce around $1.85 billion in revenues this year. These estimates seem quite stretched considering that the firm has reported multiple times that business volumes are on a downtrend. In that context, it seems rather optimistic that revenues will land close to where they ended back in 2021.

A more conservative estimate ranging from $1.2 to $1.5 billion for 2022 would result in a forward price-to-sales ratio of up to 5.6x. Even though this multiple seems rather low compared to the firm’s historical average, the absence of a clear path to profitability, a fading pandemic tailwind, and strong competition from both traditional and new brokerage firms is making it difficult to justify such a number.

All things considered, the downside risk for HOOD stock remains rather high. That said, there is a feasible scenario in which a large financial institution may opt to acquire the firm. If such a scenario unfolds, there could be money to be gained in such a transaction for investors who opt to adopt a wait-and-see approach.

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