Shares of Robinhood (HOOD) look overvalued at their current price level considering the company’s bleak growth prospects and its stock’s volatility. So, we think it is better to bet on established financial services stocks Discover (DFS), Synchrony (SYF), KeyCorp (NYSE:KEY), and Raymond James (RJF), which are well-positioned to capitalize on increasing financial transactions and capital market activities. So, let’s examine these names.Zero-commission trade pioneer Robinhood Markets Inc. (NASDAQ:HOOD) in Menlo Park, Calif., had a lackluster IPO on July 29, 2021, opening at $38 per share. Nevertheless, its shares soared to hit their $85 all-time high on August 4 based on Cathie Wood’s and Redditors’ interest in them. However, HOOD has gained only 22.8% since its opening day to close yesterday’s trading session at $46.67.
Analysts expect its EPS to remain negative in its about-to-be-reported quarter (ended June 30, 2021) and for its fiscal year 2021. Furthermore, HOOD’s trailing-12-month ROTA is negative, compared to the 1.29% industry average. The stock looks highly overvalued at its current price level, considering the company’s bleak growth prospects. In terms of forward P/S, the stock’s 18.01x is 440.3% higher than the 3.33x industry average. So, we think it wise to avoid the stock now.
However, rising financial transactions and capital market activities are driving the financial sector’s growth. And the Fed signaled two interest rate hikes as soon as early 2023, which should help financial companies increase their interest income. According to Globe Newswire, the global financial services market is expected to grow at a 9.9% CAGR to hit $22.5 trillion this year. So, instead of betting on HOOD, we think it could be wise to bet on shares of quality financial services stocks Discover Financial Services (NYSE:DFS), Synchrony Financial (NYSE:SYF), KeyCorp (KEY), and Raymond James Financial, Inc. (NYSE:RJF). All are well-positioned to capitalize on the industry tailwinds.