Robinhood stock price has surged: time to buy or sell?

Robinhood stock price has been in a strong uptrend this year and is now hovering at its all-time high as its growth gains steam. HOOD jumped to a high of $129.67, up by 229% from where it started the year at. So, does it have more gains after the recent S&P 500 Index inclusion?

Why the Robinhood stock price has soared 

There are a few reasons why the HOOD stock price has soared this year. First, the company recently became one of the newest members of the exclusive S&P 500 Index. 

Companies do well after being included in this index because many ETFs that track it must acquire its stock. Also, companies in the index normally attract some prestige over time.

Robinhood has also continued to fire on all cylinders this year as volume in the stock, options, and crypto industries rose. The most recent results showed that its revenue jumped by 45% to $539 million, mostly driven by the options market. 

Its revenue growth was also driven by the crypto segment, whose revenue jumped by 45% to $160 million. The Bitstamp buyout will help it accelerate this growth.

Its net income rose by 105% to $385 million, making it  a highly profitable company. Robinhood’s total platform assets also rose by 99% to $279 billion.

Robinhood has also continued to monetize its users well, with the Average Revenue Per User (ARPU) jumping by 34% to $151.

Third, the company has continued its innovation this year, especially by being the first mainstream firm to offer tokenized stocks to its European clients.

In line with this tokenization theme, the company is now working on its standalone layer-2 platform on top of the Arbitrum network. This will be a big opportunity as Coinbase has demonstrated through Base, a platform that will be valued at billions of dollars when it launches its token, probably in 2026.

Growth to continue, but valuation concerns remain

Looking ahead, analysts are upbeat about its revenue growth, with the average revenue estimate for the current quarter being $1.15 billion, up by 80% from the same period last year. This growth will be because this will be the first quarter with its Bitstamp earnings.

Analysts also expect that its annual revenue will rise 40% to $4.13 billion this year followed by $4.8 billion next year. Robinhood’s earnings will also accelerate, with the EPS rising to $1.9 and $2.12 in the next two years.

However, there are fundamental and technical risks to remember. The most notable one is that Robinhood has become a highly overvalued company, with a forward price-to-earnings ratio of 61 and a trailing one of 61.7. These numbers are huge for a company in the financial services industry.

The other risk is that, historically, stocks jump after being added in the S&P 500 Index and then pull back after that as investors sell the news.

HOOD stock price is overbought 

Meanwhile, technicals suggest that a HOOD stock price pullback will be warranted as it remains much higher than the 50-day and 100-day, and 200-day Exponential Moving Average (EMA). In most cases, companies tend to retreat and retest these averages.

Oscillators have also become highly overbought, with the Relative Strength Index (RSI) moving to 71 and the Stochastic Oscillator rising to over 90. The RSI has also formed a falling wedge pattern.

The stock has also moved to the upper side of the ascending channel, meaning that a retest of the lower side at $100 is possible.

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