Trading platform Robinhood is widely credited with democratizing trading and introducing the world to fee-free stock transactions.
Now used by millions of retail investors, Robinhood has become a serious force in the investment world. The stocks that are most held on the platform, therefore, give a great deal of insight into the collective behavior of retail investors.
Until recently, tech giant Apple (NASDAQ:AAPL) was largely undisputed as Robinhood’s top stock. Another leading stock, however, has officially displaced Apple from its spot at the top of Robinhood’s lists. So, what is the top stock on Robinhood?
Meet Robinhood’s New Top Stock: Tesla
As of early August, Tesla (NASDAQ:TSLA) has successfully replaced Apple as the top stock among Robinhood investors.
The two companies have both been near the top of Robinhood’s stock offerings for several years, but Tesla appears to have finally gained a reasonably stable spot at the top.
How Long Was Apple on Top?
Apple has been a fairly consistent top stock for much of the time Robinhood has existed. While the top spot fluctuates, the tech company is a constant leader for the title of the most-held Robinhood stock.
Owing to brand recognition and consistent earnings growth, Apple has long been a favorite of everyone from high-growth tech investors to value investors like Warren Buffett.
Why Tesla Replaced Apple
In part, Tesla’s sheer momentum was likely responsible for its replacement of Apple on the Robinhood leaderboard.
Robinhood investors are well-known for participating in momentum investing, and Tesla’s meteoric growth in recent years easily made it one of the platform’s top stocks.
What finally seems to have put Tesla over the top, though, was its Q2 earnings report. In the most recent quarter, the company achieved 42 percent year-over-year revenue growth. Adjusted earnings totaled $2.27 per share, handily beating out the consensus estimate of $1.81.
Following the release of the earnings report, Tesla shares surged by nearly 12 percent over just two trading sessions. Combined with Robinhood’s famous love of momentum, this boost in the company’s fundamentals appears to have allowed it to overtake Apple and emerge as the platform’s new favorite stock.
Will Tesla Keep the Top Spot?
It’s difficult to say whether or for how long Tesla will remain as the top stock held by Robinhood investors. In January of 2021, for example, Tesla briefly dethroned Apple.
Following a brief period in which AMC Entertainment became the most-held stock during extreme momentum stock volatility, Apple re-emerged at the top of the list. As such, it’s entirely possible that Apple will regain its spot again.
Concerns regarding Tesla’s valuation also continue to plague the company. Although these concerns have yet to exert much downward pressure on share prices, Tesla is significantly overvalued by almost all traditional valuation metrics.
The stock trades at 76 times its projected earnings for the next year and more than 100 times its cash flow. Tesla is also priced at more than 25 times its book value, compared to an industry average of just 2.45 times.
Apple, by contrast, trades at about 28 times forward earnings and 26 times cash flow. While its price-to-book ratio is higher than Tesla’s at about 48, it’s important to remember that many of Apple’s assets are non-tangible. As such, book value is a less useful measure of its pricing.
Over the next 12 months, analysts project that Apple will return 6.9 percent, compared to 7.1 percent for Tesla. If these projections serve as a proxy for buying activity, it’s very likely that the two stocks will remain neck and neck for the top spot on Robinhood for the foreseeable future.
Earnings surprises or unexpected news about the companies could, however, change that outcome substantially.
In the short run, an upcoming 3-for-1 stock split could also keep Tesla in the lead. While a split hypothetically neither adds nor subtracts value, it’s fairly common to see a spike in buying activity when one occurs. As a result, Tesla could see more buying activity on Robinhood once the shares split.
Apple vs Tesla: Which Stock Is Better?
Needless to say, the close competition between these two stocks on Robinhood invites the question of which is really the better investment. Even though Tesla has become the more popular of the two on Robinhood, there’s still a very strong case to be made on Apple’s behalf.
Valuation is likely the most important point in comparing Apple and Tesla. While Apple’s metrics are somewhat high, Tesla’s make a very strong case for the stock being overvalued.
Some estimates suggest that the stock could fall by as much as 50 percent in the event of a correction that brought it into more reasonable territory. While this extreme case is unlikely, it illustrates the degree to which Tesla could be overbought.
Tesla is also beginning to struggle with margins on vehicles amid inflation and ongoing supply chain issues. As such, it may have a difficult time supporting high earnings growth going forward. Apple’s gross margin, meanwhile, reached 43.7 percent in Q2.
A final deciding factor investors may want to consider is Apple’s growing dividend payout. Because it is still in its growth phase, Tesla stock does not currently pay dividends.
Apple, however, has begun paying a modest distribution. While still not massive, Apple’s payout has grown at a compounded rate of 8.45 percent over the last five years. Stable dividends are often a marker of reliable cash flows and help to add to investors’ returns during periods of lower share price growth.
So, while Tesla may have taken the lead on Robinhood, it’s very likely that Apple is still the better investment of the two companies. This doesn’t mean, of course, that Tesla is inherently a losing stock. Investors who buy Tesla could see high returns in the future, but they also assume more risk. Apple, meanwhile, offers a more conservative play on a company that is still growing robustly.
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.