Robinhood Stock | Should you Buy or Sell?

a quick preface in this video we're

going to talk about the potential for a

robin hood short squeeze the momentum

that's happening

payment for order flow and then we're

going to talk about a robinhood

fundamental analysis

so we've got a lot to talk about in this

video i just wanted to give you a quick

outline but let's talk about robinhood

all right so obviously robin hood has

gone parabolic and it begs the question

that is robin hood just running on some

crazy momentum is it getting short

squeezed what's happening and if it's

running on crazy momentum or it's

getting short squeezed

are we fundamentally overvalued at this

point is it going to keep running or is

it going to fall

when we look at other momentum-based

stocks we see the same patterns

wrap it up rapid descent look at cciv

meta materials

you name it amc gme we've all seen the

parabolic run

and then a settle at some kind of lower

level although usually that level can be

higher than where the stock was before

so are we going to return to 34 anytime

soon

probably not i think the initial open of

robin hood falling 10

was likely due to insiders dumping

shares

to finally realize some of that capital

they've been holding on to

for a very long time inside the company

so i'm not sure we're going to fall back

to those kinds of levels

but should we be sitting around 68 to 70

dollars

i don't know let's talk about this a

little bit first it's worth noting that

the odds are

that right now robin hood is not

suffering a short squeeze

that's because according to s3 partners

we've got about 200 million shares

trading

of those about 10 million shares are

short

now i know it's hard for us to get our

hands on short shares

but institutional traders have their

ways anyway

that only works out to about five

percent of the float so even if that

five percent

fully fully short that is only five

percent short

it's probably not enough to actually

have a substantial short squeeze impact

on

robinhood stock so i don't think we've

got ourselves a short squeeze

what i think instead we have is a stock

that was substantially oversold

when it initially ipo'd and it wasn't

oversold by retail

it was under bought by retail so he was

oversold by insiders

leading the price to fall retail didn't

want to buy the dip

because most people said screw robin

hood they were bad to us

on gme that's obviously the commonplace

impression

and therefore we're not buying their

stock forget them

let them go to two dollars or whatever

that was a pretty common retail

impression

now it wasn't until whether

institutional borrower buyers

or other retail started actually buying

the dip that for a few days we had

robinhood start trending up

and when we started noticing that

robinhood was trending up

all of a sudden robin hood got the

attention of wall street bets

and all of a sudden when robin hood got

the attention of wall street bets

well you guessed it we got a parabolic

increase

in the price of robin hood in fact if we

take a look at the day chart right here

we'll be able to see exactly and

corroborate exactly what i'm talking

about

this actually in fact it's been it's

ipo'd so recently we're better off going

to the hour chart

so if we go to the hour chart and we

zoom in

here we can see ipo plummet on ipo

people buy the dip on ipo day

we get some gains a little volatility we

get a second

day here of gains we get two days of

gains in a row

that was enough to get the attention of

wall street bets and boom all of a

sudden we get this

massive massive explosion in price not

only yesterday that's tuesday where we

opened up

somewhere around 40 bucks actually the

open was 37.90

we closed right around 47.89

but then we get really the retail

momentum pick this stock up

and all of a sudden we open uh at

54.45 and

end up closing at 66.77

uh actually i'm sorry we closed at 70

39. now right now the stock is down

about 4.38

in after hours not a surprise for a day

in which that it's up like 40 or 50

percent

uh probably closer to 40 which is pretty

incredible

and he's not going up 40 to give back

four percent in after hours

big deal now a big tell is going to be

what happens tomorrow

are we going to get volume coming back

to the stock or not

now we're going to talk about

fundamentals in a moment but just take a

look at the volume here for a moment

ipo day which usually has insane volume

102 million shares

next day which ended up green 40 million

shares

next day which also was green 19 million

shares

then enter volume and it's buying volume

89 million shares 172

million shares it's nuts these are

massive volume bars unfortunately

much to the success of robinhood today

it

looks like a lot of potential

momentum-based traders

have taken their money out of stocks

like amc

to potentially fund their purchases in

robin hood over the last few days

now no guarantees of this and i'm not

advocating this at all

i love amc i'm still holding my mc

because i promised i would

uh it but ultimately robin hood is a

very interesting one and i think right

now

we ought to talk a little bit about

fundamentals where robinhood makes their

money

and payment for order flum so first

i want to disclose that robin hood is a

really big position of mine it's

probably one of my biggest positions

not just because the price has gone up

but uh it's it's a big position of mine

i also sent an alert that's just one of

my alerts that i sent

but i did send an alert when it was at

3421

buying the dip on ipo day adding to my

existing position

now uh robin hood fundamentally

at this price we got some talking to do

about this

before we talk fundamentally though

let's hit payment for order flow all

right

now before i explain what the heck this

bloomberg terminal chart is here i want

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the link down below and folks let's get

into this right here so this right here

shows us that robinhood makes a lot of

money from payment for order flow

we already knew this in fact if we go to

page 34 of the robinhood

s1 we'll see for the year ended december

31st 2020

payment for order flow revenue was 75

and for the three months ended

the first quarter of this year payment

for order flow represented 81

of their revenues so obviously payment

for order flow is a massive part of the

money this company makes

which if we look at the bloomberg

terminal we could see exactly

where this payment for order flow is

coming from all right so to understand

this what you're

going to see here on the left side are

different companies and then on the

right side you're going to see total

payments these companies received

for payment for order flow and you're

going to see here that td

clearing takes the cake at receiving 31

million dollars worth of payment for

order flow in just

june 2021. now what's really interesting

is you have robinhood at 21.8

21.8 million dollars for just

equities in just june now what's also

really crazy about that

is look at this this is the year to date

you've got january here 47 million

dollars in stock payment for order flow

to robinhood goes up in february to 51

goes

to 34 in march 16 and 13 in

april and may and pops off again in june

this is really interesting because you

have

when you add up over here 47 plus a 51

that'll bring you to

around 98 uh plus a 34 that'll bring you

to about

132 132 right here and payment for order

flow on equities

just super quick dirty kind of math here

and then you'll see the payment for

order flow over here robinhood only

brought in about

51 million dollars in payment for order

flow so a fraction of what we've had

previously

in fact if we divide 51 by 132

that gives us 38 that's only 38 of the

revenue they previously had from payment

for order flow

and remember folks payment for order

flow makes up 81

of the payments that robin hood gets

that's that's intense this is something

to keep an eye on

okay then take a look at options though

because we also get the amount of money

that robin hood makes from options now

you can see when it comes to payment for

order flow for options that options

payment for order flow has declined

about eight percent at a robin hood

in this last quarter here with options

you can see though

that robin hood is a powerhouse look at

this

71 million in options payment for order

flow in june

that's a massive increase and it's the

largest payment for order flow

they have had in the last seven months

folks

forget about the past look at the

trajectory that robin hood still has the

power of commanding

almost twice td ameritrades payment for

order flow revenue

twice td clearing revenue

three almost three times e trades

options

clearing multiple times i mean how many

times is this is almost

five five times the clearing of more

than five times the clearing

of payment for order flow payments that

weeble

does with options robinhood is

a payment for order flow powerhouse now

this does create some potential risks i

mean what happens

if robin hood's equity payment for order

flow goes away

or somebody else comes up and all of a

sudden gets more payment for order flow

now what's also interesting though is

noting

how much of this payment for order flow

revenue actually comes from citadel

take a look at this you can see this is

percentage by the way

you can see that 31 of options order

flow comes from

citadel 29 comes from global execution

brokers

and when it comes to trading stocks that

are in the s p 500

35 comes from citadel 31 comes from

citadel for non s p 500 stocks

and then you get to some of these others

like g1 x execution

vertu americas and so on so obviously

payment for order flow makes a lot of

money for robinhood we also know that

payment for order flow revenue

is declining for robinhood in this

quarter

about eight percent here and

substantially more over here

i mean going down from 132 million

to 51 million clearly

made ipowing now a very smart choice for

robin hood

because that is a decline of somewhere

around

61 that's a massive decline on payment

for order flow revenue so

we're going to see some revenues come

down at robinhood now who knows

maybe they'll come back up but we had a

little bit of a quiet quarter here and

these are some important things to

consider

when we get into fundamentals so here's

the thing first thing we want to look at

is the valuation of some of these

companies relative to their

revenue in q1 not all of these have net

earnings so i'm going to go with revenue

in q1

and so right here i have valuation

stripe valued at about 100 billion

dollars

you've got square valued at around 120

you've got so far

valued at uh around a 13 billion dollars

robin hood here valued at about 58

billion dollars and then what i did is i

just took the revenue of

quarter one alone and i calculated

a ratio of quarter one revenue to their

market

cap so this is only quarter one revenue

and you can see based on quarter one

revenue

robin hood actually has the highest

valuation

out of all of these at a price of

somewhere around 65 to 70

it's pretty pricey you are paying

basically

a premium for the biggest payment for

order flow processor

now if payment for order flow risks come

out from the sec

then obviously robin is going to have

trouble but if payment for order flow

gets the green light from the sec and

says you know what this is a competitive

industry

we see that only 31 is going to citadel

and 29

is going to the competitors or whatever

whatever whatever seems like there's

enough of a free market here

which we all know is kind of bs but

anyway

if that's the case and that's what the

sec rules robinhood is going to get the

green light

for having not only the simplest

platform but also a platform that has a

ton of

users who are making a ton of money for

robinhood especially with options

trading

and so that's why you're paying a higher

price to sales ratio here than uh what

you would otherwise

potentially some of these other

companies now keep in mind robinhood

also has some of the highest growth out

of all these companies

i would say a rival company to robin

hood in terms of growth

would be either sofi or potentially

stripe which obviously stripe isn't

public

but square a firm coinbase interactive

brokers td schwab

these are all going to grow way slower

than robin hood

and so far in a firm while they might be

great they also have negative

q1 operating profit whereas robinhood

has an 11.3

operating profit margin and this is

actually where coinbase shines

coinbase brings a lot of money to the

bottom line now we expect some of their

revenues to decline as well as crypto

volatility goes down

but boy oh boy they chose an excellent

quarter to go profitable or i mean to

ipo in because they make lots of money

so don't get me wrong you're paying

premiums for companies like coinbase and

robinhood

but these have situated themselves as

basically being these

powerhouses of consolidating

users and then figuring out how to best

monetize them

take a look at this folks robinhood has

about

17.7 million monthly active users

that means right now you're paying about

3276 dollars per user at today's

valuation for robinhood

given that each user makes robinhood

about 137 dollars per quarter

at least using q1 numbers which means it

could actually be less

it would take you about six years to

break even on what you're paying at this

valuation per user

it's on the rich side and what we really

need is

a lot of growth to come to robin hood

and growth not to slow down

unfortunately when we look at website

traffic data for robinhood

we're starting to see a slowdown in

website traffic

already for a q2 now it makes sense

because that's similar to what we're

seeing in payment for order flow

i understand a lot of people use the app

but these are some important things to

consider

so if you're in robin hood you got to

ask yourself

is this a long huddle for you if it's a

long haul for you

i'm all for it is this a short squeeze

no

is this something where you want to make

a quick buck and get out hey

well take advantage of the fact that

you've got a lot of volatility all of a

sudden you've got a movement all of a

sudden supporting robinhood

it'll either go up tomorrow or it'll go

down tomorrow quite frankly

you might consider looking into taking

advantage of of some options

to make sure you can hedge your strategy

and ownership of these shares

if you're not familiar with taking

advantage of some of these strategies

check out the programs linked down below

like my stocks in psychology of money

course where we talk about some of these

strategies regularly and you get to see

what kind of trades i'm making

so folks thank you very much for

watching this video if you found this

video helpful please consider sharing it

and folks we'll see in the next one

thanks bye

you