Is It Too Late to Consider Robinhood After Its 220% Rally in 2024?

If you have been watching Robinhood Markets recently, you are probably wrestling with that classic investor question: “Is it still a buy after such a big run?” The stock has been putting on quite a show, rallying 7.5% in the past week and 15.4% in the past month. Zoom out and the year-to-date performance becomes even more staggering, posting an eye-popping 220.0% gain, with a massive 454.2% surge over the past year. In just three years, Robinhood’s return stands at an incredible 1213.2%, turning a lot of casual investors into true believers.

This surge has come as trading activity and mainstream interest in Robinhood’s app continue to shape market discussions. Growing demand for user-friendly investing platforms and higher engagement from younger investors have both played a part. With this kind of momentum, it is natural to wonder whether the stock's current price still makes sense or if the risk of buying in now is higher than before.

But let’s not get carried away by sheer numbers. If we turn to traditional valuation metrics, Robinhood currently posts a value score of 0 out of 6, meaning it does not appear undervalued on any of the main criteria analysts use to spot bargains. That score suggests caution, but of course, raw valuation methods do not always tell the whole story. Up next, we will break down exactly how these approaches see the company and then explore one way investors might cut through all the noise to get a better read on Robinhood’s true value.

Robinhood Markets scores just 0/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Robinhood Markets Excess Returns Analysis

The Excess Returns valuation model focuses on how much profit a company earns above its cost of capital, giving insight into whether management creates real value for shareholders. This method helps investors gauge if a stock can sustainably generate returns that outpace what it costs to fund its operations.

For Robinhood Markets, analysts estimate a Book Value of $9.09 per share and forecast Stable Earnings Per Share (EPS) of $2.38, based on future Return on Equity estimates from seven analysts. The Cost of Equity is calculated to be $1.02 per share, meaning Robinhood is currently posting Excess Returns of $1.36 per share. The company's average Return on Equity stands strong at 19.52 percent. Analysts also see Stable Book Value increasing to $12.20 per share, based on three independent projections.

With this model, Robinhood’s estimated intrinsic value is $37.80 per share. Compared to its current price, the Excess Returns valuation signals that Robinhood stock is around 233.9 percent overvalued, making it look quite stretched relative to the value its core business is expected to generate.

Result: OVERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Robinhood Markets.

Our Excess Returns analysis suggests Robinhood Markets may be overvalued by 233.9%. Find undervalued stocks or create your own screener to find better value opportunities.

Approach 2: Robinhood Markets Price vs Earnings

The Price-to-Earnings (PE) ratio is a widely used valuation tool, particularly useful for assessing profitable companies like Robinhood Markets. This metric helps investors gauge how much they are paying for $1 of the company’s current earnings, making it straightforward to compare valuations across companies and time periods.

However, what counts as a “normal” PE ratio is not the same for every company. Higher growth expectations or lower business risks can justify a higher PE, while companies with slower growth or more uncertainty typically trade at a discount. For Robinhood, the current PE ratio sits at 62.7x. This stands out compared to the Capital Markets industry average of 27.2x and a key peer average of 23.9x. Such a high PE usually signals that investors expect rapid growth or robust future profits.

This is where Simply Wall St’s Fair Ratio comes into play. The Fair Ratio is a custom benchmark that considers factors overlooked by simple peer or industry comparisons, such as Robinhood’s projected earnings growth, profit margins, business risks, industry dynamics, and market capitalization. According to this proprietary Fair Ratio, Robinhood would be fairly valued at 28.7x earnings, which is significantly lower than its current PE of 62.7x. Since Robinhood’s actual valuation is more than double its Fair Ratio, the stock looks expensive based on this metric.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Robinhood Markets Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let’s introduce you to Narratives. A Narrative is simply your unique story or perspective on a company, connecting what you know or believe about its business, industry shifts, and future prospects directly to your own numbers, such as your estimated revenue growth, profit margins, and fair value.

Unlike traditional metrics, Narratives bring your analysis to life by linking Robinhood’s story to a forward-looking forecast and a real-time estimate of fair value. This approach makes it much easier to see whether the current price fits your viewpoint or not. Narratives are available to everyone on Simply Wall St’s Community page, used by millions of investors, and designed to be accessible, even if you are new to stock analysis.

As you compare the current price to your Narrative’s fair value, you can quickly decide when a stock is truly worth buying or selling. In addition, your Narrative stays dynamic by updating as soon as new information or earnings are released. For example, some investors’ Narratives for Robinhood are bearish, with fair values as low as $50 if they see regulation or competition holding back growth; others are bullish with fair values up to $160, expecting rapid product adoption and international expansion. Which Narrative matches your view?

Do you think there's more to the story for Robinhood Markets? Create your own Narrative to let the Community know!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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