Shares of Robinhood Markets (NASDAQ:HOOD) are down around 25% this year. The company’s recent earnings report didn’t help inspire investors, as the results were short of expectations. Entering trading this week, the stock is down more than 40% from its 52-week high of $149.41.
The business, however, still has significant growth opportunities ahead, and its trading platform is highly popular with young traders and investors. Could the recent drop in price after earnings be a golden buying opportunity for long-term investors?
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Are Robinhood’s recent earnings numbers a concern?
Robinhood has been a hot growth stock to own in recent years, in large part due to its stellar numbers and growth potential. But when the company reported its latest results last week, they weren’t all that impressive. Revenue was up, but it rose by a fairly modest rate of 12%, to $1.4 billion. While the business is generating significant growth due to event contracts, cryptocurrency-related revenue tanked by 55% during the most recent period, which ran through the end of September.
While the business has been diversifying its operations, a poor appetite for trading, risk-taking, and buying crypto can certainly have a significant impact on its operations. This time last year, the company’s growth rate was 100%, with cryptocurrency revenue being a catalyst at the time, rising by more than 300%.
The sharp change in the growth rate demonstrates the volatility that can accompany investing in the business, as it has fluctuated significantly. While the company’s revenue for the quarter met analyst expectations, the bottom line fell short, with earnings per share of 51 cents, lower than the 56 cents Wall Street expected.
Robinhood’s stock may be trading lower, but it’s not necessarily a cheap buy
When investors look to whether a stock is a good buy or not, it’s important to consider its price-to-earnings (P/E) multiple. That’s effectively a gauge of the kind of premium it’s trading at.
For growth stocks, the premium can be fairly high, and that has been the case for Robinhood in the past. This is why even with its sizable decline in value this year, it’s still not a cheap buy — its P/E multiple is just under 40. At that kind of premium, expectations of future growth will be high.
