The rise of user-friendly mobile trading apps and websites, plus the introduction of commission-free trading has resulted in two significant developments; for one, it has shown there is real appetite for DIY investing. Secondly, it has also piqued the interest of whole new group of retail investors. And this has proved a real tailwind for Robinhood (HOOD).
With its sleek and user-friendly mobile app providing free stock, options, and crypto trading, Morgan Stanley analyst Michael Cyprys thinks the company has taken this opportunity by the horns. Robinhood has built a presence in the retail trading space with an offering, which in a sense has “democratized access to financial services with demonstrated appeal to the Gen Y/Z demographic.”
And as this demographic age into their “prime earning and savings years,” Cyprys sees a big opportunity for the company to “grow” with the roughly 150 million members of this age group.
Not that Robinhood has been short on growth so far. From just 5 million accounts in 2019, that has now swelled to 22.7 million accounts, of which Cyprys estimates 57% – around 13 million – of the user base are part of the Gen Y/Z demographic.
And there’s plenty of room to grow still. According to a recent Morgan Stanley survey, ~20% of the US population presently have a brokerage account, which vs. the 70% that have a savings account and ~90% that have a checking account, is still “relatively low.” Over time, Cyprys anticipates brokerage penetration could grow to almost 50%.
This is all good news for the free trading app, but Cyprys stops short from fully endorsing Robinhood right now.
With intense competition from several directions including fintechs, “large-scale incumbents, and newer entrants into self-directed investing,” near-term user growth is going to be hard to come by.
Moreover, a higher interest rate climate such as the current one may not present the best time to attract shareholders who will have to “wait for progress on growth and the path to profitability.”
There’s also the target audience, which is yet to fully mature, with the majority still a way off prime earning and savings years. Therefore, pulling in and monetizing the Gen Y/Z demographic could take a while. “Further,” the analyst expounded, “a majority of financial assets today sit with baby boomers/silent generation and Gen-X. While there will be a large generational transfer, we think that will play out over a long period of time, particularly as people are living longer.”
As such, Cyprys rates Robinhood shares an Equal-weight (i.e., Hold) along with a $15 price target. This provides room for ~16% growth in the year ahead. (To watch Cyprys’ track record, click here)
Cyprys’ rating aligns with the rest of the Street’s take; the stock’s Hold consensus rating is based on 5 Buys and Holds, each, plus 2 Sells. However, the average price target is more bullish than Cyprys will allow; at $18.55, the figure represents potential upside of 43%. (See Robinhood stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
