Forget Gamestop (NYSE:GME) and AMC Entertainment (NYSE:AMC). Robinhood Markets stocks are the ideal way to invest in the resurgence of meme stocks.
Now that the meme stock mania appears to be reigniting, investors are once again eyeing shares of some of the big meme stocks of 2021. But instead of chasing shares of a specific meme stock, the smart way is to invest in the theme of retail investors returning to the market, investing in Robinhood Markets, which will continue to benefit from the influx of retail investors and increased trading volume.
In that sense, Robinhood can be seen as the way to get the retail business back on track. Unlike Gamestop or AMC, I believe it’s a great stock on its own and doesn’t need a short squeeze to move higher.
I’m bullish on Robinhood stock based on its excellent user and deposit growth, its positioning as a foothold for increasing retail investor activity, and its successful forays into new areas like IRAs and credit cards. This latest initiative transforms Robinhood from a retail brokerage to a comprehensive financial powerhouse.
Meme Stock reawakening
As you’ve probably seen by now, a tweet from Keith Gill, aka Roaring Kitty, the leader behind Gamestop’s massive 2021 rally that sparked the original “meme stock” mania, marked his return to the platform after a hiatus from multiple years. Many investors took this as a signal to get into Gamestop and other meme stocks of the era, sending shares of these stocks on a wild ride this week.
However, most of these investors would admit that this is a troubled company with unpromising long-term prospects, and that the stock carries significant downside risk. For example, the $7 price target for GME stock shows that even after the recent pullback, the stock still has a 68.5% downside potential (see below). Meanwhile, Robinhood is a thriving, growing company with a bright future.
Playing Picks and Shovels
As the brokerage app of choice for many new investors and retail investors, Robinhood is well positioned to benefit from an influx of new traders and a spike in trading activity. Currently, Robinhood is the No. 11 financial app in Apple’s App Store, behind run-of-the-mill payment apps like Cash App and Venmo, but leading the way like Fidelity and Charles Schwab (NYSE: SCHW), and Wells Fargo (NYSE:WFC), a significant achievement for the much smaller company.
Robinhood recently released updated statistics for April, showing that business is booming. An impressive 90,000 customers opened accounts during the month, meaning Robinhood now has 24 million customers. Robinhood also received $4.9 billion in deposits. This represents a 45% year-over-year growth rate compared to March. Thanks to this influx, the company has now taken $27.4 billion in deposits over the past twelve months, representing 35% year-on-year growth compared to April 2023.
And keep in mind that these numbers predate the meme stock resurgence in May. As more retail investors return to the market or are drawn to the market for the first time by news of the meme stocks’ wild swings, Robinhood’s user and deposit growth should continue.
This growth prompted Bank of America Securities to give Robinhood a double upgrade from Underperform to Buy, based on “(1) increasing retail engagement and accelerating organic growth; (2) positive operating leverage after major cost savings; (3) attractive valuation after EBITDA/EPS increases.” Bank of America raised its price target on Robinhood from $14 to $24.
Beyond meme stocks, Robinhood has made great strides in building its platform, expanding into new areas and becoming a true financial ecosystem for its users.
Attacking new vertical markets
This isn’t the same old Robinhood as it was in 2021 during the last meme stock frenzy. I talked about Robinhood and its underrated transformation into a full-service financial ecosystem a few months ago, and the stock has performed well since then. Robinhood launched IRAs last year and has made an aggressive move into the market by offering a 1% match on rollover deposits and a 3% match on deposits for Robinhood Gold members.
These maneuvers help the company attract customers from its competitors. CEO Vlad Tenev says the first quarter was the second quarter in a row in which the company had “net inflows of assets from all other major brokerage firms – totaling $3 billion, more than double the level in the fourth quarter.”
Robinhood is also making a splash in the credit card market with the launch of the upcoming Robinhood Gold card, which will be one of the offerings within the Robinhood Gold subscription service.
The striking gold card, made of stainless steel and weighing 17 grams, offers users unlimited 3% cashback on all purchases. Tenev says more than one million customers have joined the waitlist for the Gold card, stating: “We can significantly increase Gold adoption as we roll out the card.” The card could be a major growth driver for Robinhood Gold membership, as only half of the people on the waitlist are current Gold subscribers.
Tenev says the number of Robinhood Gold subscribers reached 1.7 million in the first quarter, after 260,000 new customers signed up. With this new offering, Robinhood is smartly leveraging its success with retail investors in its brokerage business to enter new vertical markets, increase portfolio share among its customers and achieve further growth.
Is Robinhood Stock a Buy According to Analysts?
As for Wall Street, HOOD gets a consensus rating of Hold based on four Buys, eight Holds, and four Sell ratings assigned in the last three months. The average HOOD stock price target of $20.86 implies 3.8% upside potential.
The takeaway: an emerging financial powerhouse
Instead of chasing a stock like Gamestop during this meme stock upswing, Robinhood could potentially be the best way to invest in a resurgence in retail investor activity. I’m bullish on Robinhood because of the strong user and deposit growth it has already shown this year and because it is well positioned to achieve further growth as more retail investors enter the market.
Furthermore, the company’s expansion into lucrative verticals such as IRAs and credit cards and its momentum in these areas have the potential to transform it from a retail brokerage into a true financial powerhouse over time. In my opinion, this makes it an attractive long-term investment opportunity.
Revelation
