Robinhood (NASDAQ:HOOD) has surged in the past year, delivering massive returns to shareholders and pushing the stock’s valuation up as the business has grown.
While there’s no doubt that Robinhood has been an excellent short-term holding, many investors are now wondering whether the stock can keep this positive performance up over longer periods of time.
Is Robinhood stock a long-term hold, or have high share prices set it up for a potential correction?
Robinhood Trading At 44x Earnings
At 44.5 times trailing 12-month earnings, 23.1 times sales and more than 130 times operating cash flow, Robinhood doesn’t look conventionally cheap. This is hardly surprising, considering the fact that the stock has risen by over 200 percent in just the last 12 months.
Interestingly, however, analysts still tend to believe that there’s significantly more upside left in HOOD. The consensus price for the stock is now $151.14, more than 40 percent above the most recent price of $107.30. Robinhood also holds 12 analyst buy ratings, compared to just 6 holds and 2 sells.
Robinhood’s Growing Revenues 2x
Although it took Robinhood quite some time to become profitable, the brokerage is now sitting on a streak of 12 straight quarters of revenue growth and 10 of earnings growth. Impressively, Robinhood has been able to drive this growth without relying on excessive debt. Right now, the business has only a little over $100 million in long-term debt and over $4 billion in cash and cash equivalents.
Even more importantly, though, Robinhood’s growth is trending sharply upward in a way that could help to justify its premium valuation. In its Q3 report, Robinhood detailed revenue growth of 100 percent to a total of $1.27 billion. This was the highest growth rate the business has delivered since Q4 of last year and the second-highest rate in the last four years. This impressive result was driven by a 129 percent increase in transaction revenues and a 66 percent increase in net interest revenues.
Impressively, Robinhood’s total platform assets increased by 119 percent to $333 billion, despite the fact that the total number of funded customers increased by a comparatively modest 10 percent. The number of investment accounts rose by a slightly higher rate of 11 percent.
Net deposits, meanwhile, increased by 29 percent from the year-ago period. Between strong growth in the number of users and even more impressive growth in deposits and assets, Robinhood appears to be well-positioned for progressive revenue expansion going forward.
As a result of these other growth trends, Robinhood’s net income in Q3 skyrocketed by 271 percent to $556 million. This brought the trailing 12-month EPS to $2.48, up from a full-year total of $1.60 in 2024. Crucially, this trend of strong EPS growth is expected to remain a feature of the business for at least the next several years. Over the coming 3-5 years, analysts estimate that Robinhood’s earnings per share will grow at a compounded rate of over 20 percent annually.
It’s also worth noting that Robinhood is still rolling out new products that could help keep its growth rate high going forward. The platform’s popular Robinhood Gold program, for instance, saw year-over-year subscriber growth of 77 percent to 3.9 million in Q3. Recent moves into banking and prediction markets, meanwhile, are already bearing fruit. The prediction market business could be especially lucrative, as Robinhood has already built its annualized revenue from prediction contracts to over $100 million.
Robinhood is even attempting to break into the world of private investments with Robinhood Ventures, a fund that will allow retail investors to gain exposure to private businesses. This could not only prove attractive to Robinhood’s customer base but also help it establish itself as a solution to the gradual contraction in the number of publicly traded businesses available to investors.
Underlying all of these growth trends is Robinhood’s user base itself. As Q3 demonstrated, Robinhood is still attracting both new users and new net deposits from its existing users. Robinhood’s customer demographics are also quite appealing, as the younger groups that predominantly use Robinhood are gradually aging into their economic prime. Assuming that Robinhood can successfully retain these users as they age, it’s likely that the platform will see a very steady flow of incoming deposits as its customers increase their saving and investing.
HOOD Building Value Via Buybacks
Another positive factor for investors looking at Robinhood as a long-term investment is its growing share buyback habit. In the last year, management has bought back over $800 million of its own stock, representing about 22 million shares.
Although the rate of buybacks slowed to just 1 million shares in Q3, this inclination to repurchase shares at a time when it is still growing rapidly could show management’s willingness to deploy cash strategically if and when HOOD stock is attractively priced. Over long periods of time, this could concentrate the stock and reward shareholders who treat Robinhood as a long-term holding.
How Risky Is HOOD?
While Robinhood is clearly producing some very attractive results, there are still a decent number of risks for the young brokerage. First and foremost among these is likely its high stock price, which could set it up for elevated volatility.
This is especially true in the near term, as stocks with high valuations are already struggling due to growing concerns about the pricing of the broader market. Robinhood hasn’t been immune to this pressure, with shares having slipped by over 18 percent in the last 30 days.
Taking a longer view, Robinhood may also be at risk due to its lack of a particularly strong moat. While commission-free trading was a novel idea when Robinhood began offering it, other online brokerage majors have long since caught up. Similarly, cryptocurrency is now widely available through many brokerage platforms. With large competitors like Fidelity and Charles Schwab holding much more established market positions, there’s no guarantee that Robinhood will be able to maintain its competitive edge over long periods of time.
Is Robinhood a Good Stock to Hold Long-Term?
Despite some potential competitive risks and a valuation that will demand high levels of growth, Robinhood could be a decent buy-and-hold opportunity for the long run. The business has demonstrated a consistent ability to attract and retain young investors, a fact that is likely to benefit it greatly as those investors age and their ability to invest gradually increases. Robinhood also displays strong ongoing innovation, a fact that has allowed it to spur high levels of growth as it has embraced new financial products.
It’s also worth noting that Robinhood is delivering sector-beating returns on both invested capital and equity. Trailing 12-month ROIC stands at 10.3 percent, while ROE is even higher at 27.6 percent. Net margin, meanwhile, has risen to above 50 percent.
Looking out over the long term, Robinhood appears to be a strong business that could produce steady growth and, with it, gradual compounding returns. Though the triple-digit returns of the last 12 months are unlikely to be replicated, Robinhood’s position as a go-to brokerage for young, digitally native investors and its solid execution could push its value higher over many years. As such, HOOD may be worth looking at for some long-term investors, though the risk factors likely still bear watching.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.