Where Will Robinhood Markets’ Stock Be in 3 Years?

Robinhood also became profitable on a generally accepted accounting principles (GAAP) basis in the first nine months of 2024 as it cut costs and reined in its share-based fees. It even launched a $1 billion buyback plan earlier this year.

Robinhood still faces stiff competition from traditional brokerages Charles Schwab (NYSE:SCHW) And Morgan Stanley‘s (NYSE:MS) E*Trade has pivoted to commission-free stock trading over the past few years. It also generated 80% of its trading revenue in the last quarter from riskier options and crypto trading rather than stocks, a mix that could worsen volatility during a market downturn.

But Robinhood’s growth in funded customers remains steady, locking more active users into Gold plans and increasing the stickiness of its ecosystem with more cash management and digital payment services. It’s also connecting more users to the Robinhood Cash Card, a debit card that works on top of it. MasterCard‘s (NYSE:MA) payment network and provides cashback rewards with automatic investments.

If the Fed continues to lower interest rates, investors will likely pour more cash into Robinhood and make more transactions. But the Federal Reserve recently predicted it will cut rates less in 2025 unless inflation finally calms, and that pressure could cool the market again and constrain Robinhood’s growth over the next three years.

From 2023 to 2026, analysts expect Robinhood’s revenue to grow at a compound annual growth rate (CAGR) of 22%. As a result, they expect the company to remain profitable in 2024 and grow net income at a CAGR of 8% over the next two years.

These growth rates appear stable but may disappoint investors hoping to accelerate back to pandemic-era levels. Nor are stocks cheap enough to be worth 42 times next year’s earnings. Assuming it matches Wall Street’s estimates, continues to grow earnings per share at a CAGR of 8% from 2026 to 2028, and is still trading at 40x forward earnings, the stock could potentially lose nearly 20% more over the next three years. It is predicted that it may increase.

That’s a good three-year return, but it may not be worth the short-term risk. Investors could probably achieve similar gains with more conservative stocks, and if the market crashes and valuations collapse, Robinhood’s shares could easily be cut in half again.

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Charles Schwab is an advertising partner of Motley Fool Money. Leo Sun It has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Mastercard. The Motley Fool recommends Charles Schwab and recommends the following options: long January 2025 $370 calls on Mastercard, short December 2024 $67.50 calls on Charles Schwab and January 2025 on Mastercard. Short calls for $380. The Motley Fool has a feature disclosure policy.

Where Will Robinhood Markets’ Stock Be in 3 Years? originally published by The Motley Fool