BY MARK SEBASTIAN

August 9, 2023

Each week, I’ll give an overview of a stock and Licia Leslie will follow that up with a chart analysis the next day. Bill Griffo will chime in with macro analysis and Andrew Giovinazzi will then finish out the week with a volatility breakdown.

Have a stock YOU want us to review? Email my team here. – Mark

Hey Traders,

Gone from the meme craze are GameStop Corp (Ticker: GME) and AMC Entertainment Holdings Inc (Ticker: AMC), but it’s not totally dead.

Take a look at a chart of Tupperware Brands Corp (Ticker: TUP) or Yellow Corp (Ticker: YELL) and tell me there aren’t memers still going after names that are totally worthless.

Here’s TUP:

Meme stocks still exist – they just aren’t exploding every day.

And what platform are they using to execute these trades? Robinhood Markets Inc (Ticker: HOOD).

Robinhood has gone from high flier to the heap in short order.

Its first trade was 38 bucks a share:

It’s now 11.06.

But given all of this, is the stock worth owning?

Let’s break it down.

The Good

Let’s start with HOOD’s business model. The company makes all of its money in two ways – crypto and for stocks collecting PFOF.

PFOF is short for payment for order flow; when you execute a trade on Robinhood they sell the flow to Citadel.   

Citadel is happy to pay for the flow because then they make the bid ask spread on the trades.  With lots of trades Citadel is more than able to recoup the cost of each trade.

On a positive note, as evil as PFOF is, the SEC has basically greenlit the practice. So the business model appears to be stable.

The model relies on more trades – the more trading, the more Robinhood makes … The rebirth of memes is a huge win for HOOD.

Looking at the numbers, things are less impressive.

Frankly, given the business model, it should NOT be that hard for the company to make money.

But the company lost 827 million dollars last year… that’s not great.

The company though IS sitting on a TON of cash, nor the 11 dollars per share. That tells us that this company is not going anywhere.

Frankly, this firm is a perfect buy for a market making firm that wants to internalize order flow.

Then there is the cost of the options …

They’re cheap:

Option premiums are sitting at an all time low.

That’s often a sign a stock might catch a rally or even get bought out.

The Bad

To be frank … just about every number is bad.

The revenues are not growing the way a company of HOOD’s size should be.

The earnings stink.

The cash flow is really bad – they lost .86 of cash per share last year.

It has a market cap of 10 billion dollars and 2300 employees – both way too big.

From a fundamental standpoint … this stock is a loser.

The Verdict

With the stock trading AT the same level as cash on hand, there’s not a ton of risk in owning it. And as I said, this is an interesting buyout stock.

I wouldn’t bet the farm … but it actually might be worth owning despite the fundamentals.

Questions about that? Leave a comment below!

Your Only Option,

Mark Sebastian