Zacks Analyst Blog Robinhood Markets’, Charles Schwab and Interactive Brokers

On January 3, 2025By Littum

Chicago, IL – December 31, 2024 – Zacks.com announces the list of stocks and featured in the analyst blog. Each day, Zacks Equity Research analysts discuss the latest news and events affecting stocks and the financial markets. Stocks recently featured on the blog include Robinhood Markets’ HOOD, Charles Schwab SCHW and Interactive Brokers IBKR.

Robinhood markets‘ shares trade at a massive premium to the industry. Currently, the company has a forward price/earnings (P/E) ratio of 40.00X compared to the industry average of 13.95X.

Furthermore, HOOD stock looks expensive compared to its peers — Charles Schwab and Interactive brokers. SCHW and IBKR have a forward P/E of 19.19X and 25.38X, respectively.

Based on this, Robinhood stock is not a good investment option for 2025. But before we make any decision, let’s dig deeper.

Robinhood became extremely popular among younger generations in early 2021 while riding the meme stock wave. Nevertheless, a lot has happened on the company’s front since the IPO in July 2021.

Robinhood has evolved from a brokerage firm dealing mainly in digital assets to a more mature and diversified entity striving to expand its market and reach. Looking at the numbers, in 2021 HOOD mainly relied on transaction-based revenue (almost 75% of total revenue) to generate revenue. In the first three months of 2024, this dropped to almost 50%.

The latest initiatives by the company reflect its ambition to become a full spectrum financial services provider. Last month, Robinhood announced the $300 million acquisition of TradePMR, a custody and portfolio management platform specializing in services for registered investment advisors. By moving into the advisory area, the company will compete directly with established players such as SCHW and Fidelity Investments.

In addition, in July Robinhood bought Pluto Capital Inc. With the integration of Pluto’s advanced capabilities, the company is poised to revolutionize the investment experience for its users. As part of a diversification effort, HOOD also launched a credit card (expanding into the consumer finance space) and a desktop trading platform (aimed at more sophisticated traders). Additionally, the company began offering futures, index options and option betting contracts, broadening its market appeal.

Initiatives to change the revenue mix give HOOD solid leverage. The company intends to become a one-stop shop for building generational wealth.

In addition, during its first Investor Day conference on December 4, Robinhood announced plans to expand in Asia to take advantage of significant global growth prospects and launch Futures in early 2025, which it believes offers a nine-digit revenue opportunity.

Robinhood’s plans to focus on the cryptocurrency space through increased tokenization, enhanced capabilities and expansion into EU markets will lead to further cost efficiencies. It currently operates in four countries with regulatory approvals. It has applied for Markets in Crypto-Assets Regulation (MiCA) licenses that would allow it to offer crypto services in European Economic Area member states, increasing its presence in 27 new geographies.

The company’s planned acquisition of Bitstamp (announced in June 2024) complements this theme. Bitstamp’s core spot exchange, which has more than 85 tradable assets and is popular in Europe and Asia, will significantly enhance Robinhood’s crypto offerings.

This will support Robinhood’s cryptocurrency revenues as new investors will be attracted to cryptocurrency to increase their returns and take advantage of diversification as an asset class. Over the past four years (2019-2023), the company’s cryptocurrency revenue has witnessed a compound annual growth rate (CAGR) of 94.2%.

Further, President-elect Donald Trump is pro-crypto. The potential deregulation and the appointment of tech venture capitalist David Sacks as crypto czar and the chairman of the Securities and Exchange Commission Paul Atkins are seen as a step towards making cryptocurrency widely acceptable.

The likely deregulation will enable HOOD to list more tokens and provide additional crypto-related products such as stablecoins or staking. On November 13, the company expanded its offerings to US customers by introducing four new cryptocurrencies, bringing the total number of cryptocurrencies on its platform to 19.

In May 2024, Robinhood announced a share buyback plan. The Company’s board of directors approved a stock repurchase program authorizing it to repurchase up to $1 billion of its outstanding common stock.

Although the plan has no expiration date, the company expects to buy back shares within two to three years. From 30 September 2024, authorization to a value of approx. $903 million available for repurchase.

Robinhood is on solid ground with significant cash reserves. Per As of September 30, 2024, it reported cash and cash equivalents of $4.6 billion.

Over the past month, the Zacks Consensus Estimate for 2024 and 2025 earnings has moved upward. This upward revision reflects positive sentiment among analysts and suggests an encouraging outlook.

The Zacks Consensus Estimate for HOOD’s earnings implies year-over-year growth of 231.2% and 21.8% for 2024 and 2025, respectively.

Robinhood stock turned out to be a big winner in the current bull market. The stock has risen 206.3 per cent this year. On the other hand, Schwab is up just 8.6%, while Interactive Brokers’ stock is up 115.9%.

Technical indicators suggest further strength for HOOD. The stock is trading above its 50-day and 200-day moving averages.

This signals robust upward momentum and price stability for Robinhood. It also underlines positive market sentiment and confidence in the company’s financial health and outlook for 2025.

Robinhood is on the right track to expand/diversify operations. Its initiatives to keep adding new products and services and plans to become a global entity by venturing across Europe and the Asia Pacific regions, organically and through buyouts, align with its expansion efforts. The positive sentiment from analysts is reflected in upward estimate revision trends.

However, investors should tread carefully as the talks on deregulation and further improving the trading environment are about the future. They should keep an eye on the incoming administration’s policy decisions related to cryptocurrencies and the deregulation of the financial services sector before taking a leap with such a high valuation.

Those who already own HOOD stock can hold onto it because it is less likely to disappoint in the long term. Currently, Robinhood has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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