Is It Too Late to Consider Robinhood After Shares Jumped 393% This Year?

If you have been keeping an eye on Robinhood Markets lately, you are definitely not alone. With so much chatter about trading apps and fintech innovation, many investors are asking themselves, “Is now the right time to buy, hold, or run for the exit?” The fact is, Robinhood’s stock has been on quite a ride. Over the past year, shares have soared an impressive 393.5%. Looking further back, the growth is even more jaw-dropping, with a staggering 1103.7% return over three years. Even in the past week and month, Robinhood has posted gains of 2.2% and 6.4%, respectively. So, what is driving the hype, and is the excitement justified at this price?

Some of the recent momentum in the stock can be traced back to the buzz around rising retail investor activity, ongoing expansion into other financial products, and the company’s efforts to diversify beyond simple commission-free trades. These stories have genuinely shifted the conversation around Robinhood, hinting at potential growth, while also causing some investors to reconsider the risks.

Now, if you are curious about how Robinhood truly stacks up in terms of value, here is a quick reality check: based on a commonly used valuation scoring system, Robinhood is considered undervalued in zero out of six standard checks, earning it a value score of 0. That nugget may surprise you after all those eye-popping returns. But the real insight comes from digging deeper into how valuation is measured. By the end of this article, I will share what may be an even better way to look at Robinhood’s true worth.

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 Model examines how much profit a company can generate above its cost of equity, focusing on the efficiency of its capital and long-term growth prospects. For Robinhood Markets, this approach uses both its current profits and projections of future profitability to estimate whether the company is creating substantial value for shareholders.

Based on analyst forecasts and market data, the model estimates Robinhood’s Book Value at $9.09 per share and Stable Earnings Per Share (EPS) at $2.58, with a Cost of Equity of $1.04. This means the Excess Return, or profit generated above what investors require, is $1.55 per share. Robinhood is projected to maintain an Average Return on Equity of 20.71%, with a Stable Book Value reaching $12.48 per share. These figures are sourced from multiple analyst projections, lending credibility to the estimates used in the model.

According to the Excess Returns analysis, the model’s calculated intrinsic value is $42.01 per share. Compared to the current trading price, Robinhood Markets is estimated to be about 219.8% overvalued, indicating that the stock trades far above what the underlying fundamentals suggest is justified by its return on invested capital.

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 219.8%. 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 one of the most widely used methods for evaluating profitable companies like Robinhood Markets. It gives investors a quick sense of how much they are paying for each dollar of the company’s earnings, making it a direct way to assess whether the stock’s price aligns with its ability to generate profits.

The appropriate PE ratio for any stock depends not just on its current profits, but also on expectations for future earnings growth and the risks faced by the business. Companies expected to grow faster or with lower risk typically command a higher "normal" or "fair" PE, while those with slower growth or higher risk tend to be valued at a discount.

Robinhood Markets currently trades at a lofty PE of 66.8x, which stands far above the Capital Markets industry average of 25.9x and its peer average of 21.5x. However, Simply Wall St's proprietary "Fair Ratio" for Robinhood, which incorporates earnings growth, industry trends, profit margin, market cap, and unique risks, is 23.8x. This Fair Ratio goes beyond simple comparisons and delivers a more tailored estimate of what the company ought to be valued at, given its full financial picture.

When you compare Robinhood’s actual multiple (66.8x) with its Fair Ratio (23.8x), the conclusion is clear: Robinhood is significantly overvalued on a price-to-earnings basis.

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 there is an even better way to understand valuation, so let’s introduce you to Narratives. A Narrative is your personalized “story” about a company, bringing together your beliefs about its business prospects and the numbers you expect, such as future revenue, earnings, and margins, into a single forecast and fair value. Narratives connect what you know (or think will happen) to what that means for the company’s share price, linking the company’s evolving story directly to its financial outcome.

On Simply Wall St's Community page, Narratives make it easy for investors, with millions already using the tool, to capture, update, and compare these perspectives. This transforms complicated financial analysis into actionable insights. Narratives automatically update when new events, news, or earnings are released, helping you quickly reconsider if it's time to buy, hold, or sell by showing how your Fair Value compares to the latest Price.

For example, Robinhood Markets currently has Narratives with vastly different fair values. One investor expects regulatory hurdles and prices shares at only $50 per share, while another forecasts continued product growth and assigns a $160 fair value. Narratives empower you to choose the scenario and investment decision that best matches your outlook, or to sense check your assumptions against the Community’s latest thinking.

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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