High-finance snobbery practically requires shunning financial technology firm Robinhood (NASDAQ:HOOD), which offers an investment app for equities and cryptocurrencies. However, this snobbery may also be ill-advised, as HOOD stock could potentially disrupt the sector.
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It seems like a bold statement, given that analysts are largely pensive about the opportunity. Indeed, within the past three months, three analysts have issued Sell ratings against HOOD stock, with the most recent pessimistic assessment coming from Citi’s (NYSE:C) Christopher Allen.
I don’t disagree that the underlying enterprise faces significant challenges. At the same time, a combination of demographic and economic data points to the need for lower thresholds of equity (or crypto) market participation. That’s where Robinhood’s convenient app and gamified platform can appeal to younger generations. Given that shares are well off their highs, the current juncture could be an attractive entry point. Therefore, I am bullish on HOOD stock.
Big Data Points Favorably to HOOD Stock
As stated earlier, the big data items of demographics and the wider economy can potentially catapult HOOD stock. The catapulting can also come at the expense of big banking firms and their wealth and investment management units.
Let’s consider the main point of investing. Since we have a finite time on this earth, investing allows people to accelerate their wealth generation so that they can live comfortably until the end. And they can also save money for the next generation or for some other grand purpose if people so choose. Of course, to invest your money, you need access to the investment markets.
Depending on the selected financial firm, clients can bring to the table a wide range of wealth and asset volume to meet minimum investing requirements. Typically, though, when you’re talking about high finance – the big banks – you generally have to bring in a considerable amount to qualify, usually in the millions.
Outside of the baby boomer demographic, that’s not really happening for younger generations. Of course, one of the main talking points in the financial publication space is the concept of the massive wealth transfer. To put it bluntly, baby boomers will “transition” to the next phase of existence soon. Therefore, they will leave behind a mountain of wealth for millennials.
There’s just one problem with that: people are living longer, and the quality of that life is not particularly pleasant.
As the World Health Organization mentioned, people globally are living longer. By 2030, the agency points out that one in six people will be 60 years or older. Statistically, then, a greater probability exists that baby boomers will consume more of their wealth than previously anticipated. That’s not great news for millennials.
Also, the U.S. Census Bureau adds a second wrinkle. Although people worldwide are aging into higher metrics, many of these folks are living with illnesses or injuries. If rising obesity rates in the U.S. are anything to go by, people are living longer and unhealthier lives.
That means higher medical bills, which is also bad news for millennials. Basically, that wealth transfer is looking smaller and smaller.
Calculating the Problem in Favor of Robinhood
While big banks may look down on Robinhood, the math may warrant a complete rethink down the line. People are living longer, but they’re also likelier to use healthcare facilities and solutions. That’s going to drain the available inheritance pipeline.
What’s more, the economic situation for young people is especially harsh. To be fair, it’s difficult to compare one generation to another due to various circumstances. However, it’s also clear that while millennials have been buying homes, they tend to be older than boomers back when the latter group was first buying a home.
Broadly, that implies that young people have encountered more economic and monetary policy headwinds than their older counterparts. Based on continued challenges associated with the post-COVID-19 paradigm, accessibility to wealth management services will be more difficult. That’s where Robinhood comes in and why HOOD stock could disrupt the high-finance sector. Essentially, the high-finance sector’s addressable market could be diminishing.
By fluently speaking the digitalization language – offering an app instead of any other platform – Robinhood was able to secure a foothold with young prospective investors. Further, the surge in day trading during the early days of the pandemic gave the underlying brand an edge. Yes, many trading platforms exist. However, Robinhood truly etched itself into the collective psyche of young people.
As a result, the math, in my opinion, favors HOOD stock. In particular, analysts are calling for revenue to hit $2.43 billion by the end of Fiscal 2024. That seems like a realistic target, given that in the first quarter, the company posted sales of $624 million. In contrast, analysts were anticipating sales of only $552.21 million.
Yes, HOOD stock is trading at a rich premium of 9.89x trailing-year sales. Between Q1 2023 and Q1 2024, this metric averaged 6.7x. However, should the company hit the estimated consensus sales target, HOOD would be trading at 7.04x sales, assuming a share count of 754.86 million.
With a favorable long-term backdrop, HOOD stock could still have some more room to climb.
Is HOOD Stock a Buy, According to Analysts?
Turning to Wall Street, HOOD stock has a Hold consensus rating based on six Buys, six Holds, and three Sell ratings. The average HOOD stock price target is $22.18, implying 1.9% downside risk.
The Takeaway: HOOD Stock to Potentially Advantage Favorable Large-Scale Winds
While Robinhood may appear like small potatoes in the eyes of big financial institutions, the small entity could disrupt the storied establishments. Yes, big banks have an advantage of serving wealthier baby boomers. However, people are living longer and also unhealthier lives, meaning that the coming wealth transfer from old to young may be more diminished than anticipated. That means accessibility is king, and that makes HOOD stock a fundamentally and financially attractive idea.
