Is Robinhood suddenly worth twice as much as it was last week on IPO?
“The company was a hot topic of discussion on Reddit’s Wall St Bets forum this week and some are suggesting that this sharp rise is once again down to FOMO – the fear of missing out”
Robinhood has gone public on the Nasdaq on July 29, 2021, under the stock ticker HOOD, in a bittersweet year for the neobroker. Its explosive success with retail traders can only be comparable to the trading disruption scandals amid the WallStreetBets subreddit and the general social trading phenomenon.
The neobroker has also been collecting fines from financial watchdogs, with FINRA’s $70 million – the regulator’s largest financial penalty ever – being the latest.
It is still unclear what kind of enforcement actions will regulators take in regard to Robinhood’s trading disruptions earlier this year.
The broker’s chief executive and a number of other players have blamed the two-day settlement cycle as the culprit. These industry participants, mostly pro-PFOF, have called for a shorter settlement cycle for U.S. equities: one business day after the trade is executed (T+1).
Ahead of the IPO, with plans for a $35 million valuation, a number of high-profile figures attacked Robinhood, including Warren Buffett’s long-time business partner Charlie Munger.
“It’s most egregious in the momentum trading by novice investors lured in by new types of brokerage operation like Robinhood and I think all of this activity is regrettable”, he said.
Still, the Robinhood stock was listed on the Nasdaq in late July, with retail traders getting access, but the price dropped about 10% from its opening price of $38 – a disappointing market debut, which was later countered by a +100% upward move throughout the week. The stock peaked at $85 on August 4. Since then, a market correction pulled the price to $50.
“Short-term market moves can make little sense at the best of times – and this is just as true for newly listed stocks. Of course, Robinhood has been front and centre this year as the broker of choice of retail investors involved in so-called meme stocks such as GameStop and AMC. The stock price was so volatile on Wednesday that Robinhood allegedly had to stop trading of its own stock, on its own platform”, said David Jones, Chief Market Strategist at European investment trading platform Capital.com.
“The company was a hot topic of discussion on Reddit’s Wall St Bets forum this week and some are suggesting that this sharp rise is once again down to FOMO – the fear of missing out. This can potentially create real momentum in a market that could last for some time – the meme stocks earlier this year are a good example, as was the strong run for the cryptocurrency sector in May.
“Alternatively it could be a short-lived spike. But after the disappointing IPO, is Robinhood suddenly worth twice as much as it was last week? This could be an interesting one to watch but it wouldn’t be surprising if those whose “fear of missing out” led them to buy, end up nursing a different sort of regret in the days ahead”, Mr. Jones added.