During today's morning trading session, Robinhood Markets took the market by storm, rocketing to $34.13 per share despite it now being above its mean target price of $28.06. This 5.6% movement implies there may not be much more room for upwards movement for the stock -- if its analysts are to be believed. They are giving the Capital Markets stock on average rating of buy, with target prices ranging from 20.0 to 40.0 dollars per share.
The market seems to share this rosy outlook, since Robinhood Markets has a short interest of only 2.8%. This represents the percentage of the share float that is being shorted, and each short position stands for an investor's expectation that the price of the stock will go down in the future.
Short selling involves borrowing shares and then selling them at current market prices. In the successful version of the strategy, the shares are purchased at a lower price at some time in the future. The investor then returns the shares to the lender, and keeps the profit made on the sell/buy transaction.
One way to get an idea of the market sentiment on a stock is to check its rate of institutional ownership. In the case of Robinhood Markets, institutional investors own 79.2% of the shares. This would indicate a positive sentiment towards the stock among institutions. What does this really tell us?
Institutional investors such as hedge funds, investment firms, and wealth managers devote significant resources to identifying good investments. If they have decided to invest in HOOD, it probably means they believe it is a solid investment choice. But it could also mean they are buying up shares in an effort to acquire the company or get seats on the board of directors. Also bear in mind that institutions are fallible (just maybe not quite as fallible as the average retail investor), so they may simply be wrong when they think they've found a good stock.
In conclusion, we see negative market sentiment regarding Robinhood Markets because of an analyst belief that shares are overpriced, a buy rating, an average amount of shares sold short, and an average number of institutional investors. At Market Inference, we believe that any investment decision should be preceded by an in-depth analysis of the company's fundamental values and a comparison with similar stocks.
Here's a snapshot of some important facts to keep in mind about HOOD:
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The stock has trailing 12 month earnings per share (EPS) of $0.58
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Robinhood Markets has a trailing 12 month Price to Earnings (P/E) ratio of 58.9 compared to the S&P 500 average of 29.3
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The company has a Price to Book (P/B) ratio of 4.18 in contrast to the S&P 500's average ratio of 4.74
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Robinhood Markets is a Finance company, and the sector average P/E and P/B ratios are 20.04 and 1.86 respectively
