Is Robinhood Stock Worth the Risk? Weighing HOOD’s Pros and Cons.

Since its late July 2021 IPO, Robinhood Markets (NASDAQ:HOOD) stock has seen a tumultuous journey, yet its stock soared 137% over the past year. Diversified offerings and increased customer engagement drove this growth, alongside its best quarterly profit post-IPO. With rising investor interest, evaluating Robinhood’s trajectory becomes crucial.

Despite the waning hype, interest in self-directed investing persists. Robinhood’s gamified approach continues to attract users, with robust labor market conditions supporting its business. According to its books, the company reported $127 million in net income, and $2.04 billion in revenue. 

Market experts also expect to see more earnings growth for Robinhood, increasing approximately over 32%.

Crypto Trading and HOOD Stock

As a popular investment platform, Robinhood introduced a newly launched Crypto Trading API. The said API will allow users to access real-time market data, manage their portfolios easily, and execute crypto orders. 

The new API will also offer customization and automation for trading strategies, doing round-the-clock trading and code sharing with users.

Enhanced security measures include storing most coins in cold storage and regular code and infrastructure reviews by third-party experts. Users can access API resources and documentation on the Robinhood website and create API keys via the Robinhood API Credentials Portal.

Johann Kerbrat, VP and GM of Robinhood Crypto, emphasized the API’s role in enhancing precision and confidence for customers navigating the crypto market.

More Growth Expected In 2024

When it comes to revolutionized retail, Robinhood is also not one to miss out. The company offers zero-commission trading that enables fractional share trading. This will make investing accessible to everyone. 

Robinhood is also the first one of offer 24-hour trading across multiple stocks, giving its rivals the same idea to stay competitive. To attract more customers, Robinhood introduced a 5% APY for uninvested cash with Robinhood Gold subscription, otherwise offering 1.5% APY.

It also prioritized Gold members because of their higher activity levels and recurring revenue. Chief Financial Officer Jason Warnick noted that Gold subscribers had eight times more assets under management and generated significantly higher revenue per user. 

Robinhood encouraged long-term engagement by offering traditional and Roth IRAs with contribution matching.

The Downside

In early May, the U.S. Securities and Exchange Commission issued a Wells Notice to Robinhood, highlighting potential infractions related to its cryptocurrency offerings and custody practices. The SEC’s intensified scrutiny aligns with its stricter stance on digital currencies, considering many tokens as securities subject to registration. 

In 2023, the SEC sued Coinbase for operating some unregistered securities exchanges. The case is still ongoing, despite Coinbase’s appeal’s dismissal in early 2024.

According to Robinhood’s Chief Legal, Compliance, and Corporate Affairs Officer, Dan Gallagher, his response showed disappointment against the SEC.

Despite the company’s efforts for regulatory clarity, including attempts to register, the SEC’s decision to issue the notice regarding their U.S. crypto business was unexpected. 

Gallagher emphasized that Robinhood believes the assets listed on their platform are not securities and looks forward to engaging with the SEC to address any concerns.

HOOD Stock is a Cautious and Risky Buy

Robinhood’s recent growth is remarkable, marked by a surge in customers and assets under custody. Despite positive trends in net income, regulatory scrutiny, particularly in cryptocurrency revenue, remains a concern. 

Its removal of stock trading fees forced competitors to follow suit, and Robinhood Gold introduced significant changes. Offering 5% interest on uninvested cash, zero interest for the first $1,000 of margin borrowed, and a 3% IRA match on eligible contributions.

All that said, reliance on net interest revenue for growth may not be sustainable. With a high price-to-sales ratio and earnings multiples, HOOD stock appears relatively expensive. Investors should exercise caution when buying HOOD stock right now.

On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.