Here's what else you should know about why Robinhood Markets, Inc. (HOOD) is a trending stock

Robinhood Markets, Inc. (HOOD) is one of the stocks Zacks.com visitors have been paying the most attention to lately. Therefore, it might be a good idea to review some of the factors that could impact the stock's short-term performance.

Over the past month, shares of this company returned +18.6%, compared to the Zacks S&P 500 Composite's change of +5.4%. During this period, the Zacks Financial – Investment Bank industry, which includes Robinhood Markets, has gained 8.8%. The crucial question now is: What could the future direction of the stock look like?

While media releases or rumors about a material change in a company's business prospects usually cause the stock to “trend” and result in an immediate price change, there are always some fundamental facts that ultimately drive the buy-and-hold decision determine.

Earnings estimate revisions

Here at Zacks, we emphasize evaluating the change in a company's future earnings outlook over anything else. This is because we believe that the present value of future earnings streams determines the fair value of the company's shares.

Our analysis is essentially based on how sell-side analysts covering the stock revise their earnings estimates to take into account the latest business trends. When a company's earnings estimates rise, the fair value of its stock also rises. And when a stock's fair value is higher than its current market price, investors tend to buy the stock, resulting in an increase in the stock price. Because of this, empirical studies suggest a strong correlation between trends in earnings estimate revisions and near-term stock price movements.

For the current quarter, Robinhood Markets is expected to report earnings of $0.19 per share, representing a change of +311.1% from the prior-year quarter. The Zacks Consensus Estimate has changed -4.1% over the past 30 days.

The consensus earnings estimate of $0.76 for the current fiscal year suggests a year-over-year change of +224.6%. This estimate has changed -0.8% over the past 30 days.

For the next fiscal year, the consensus earnings estimate of $0.82 represents a change of +8.4% from what Robinhood Markets was expected to report a year ago. Over the past month, the estimate has changed by +7.9%.

Our proprietary stock ranking tool, the Zacks Rank, has a strong, outside-audited track record of success and provides a more meaningful picture of a stock's near-term price performance by effectively leveraging the power of earnings estimate revisions. Robinhood Markets receives a Zacks Rank #1 (Strong Buy) based on the magnitude of the recent consensus estimate change as well as three other factors related to earnings estimates.

The story continues

The following chart shows the evolution of the company's forecast 12-month EPS estimate:

12-month EPS

Projected sales growth

While a company's earnings growth is arguably the best indicator of its financial health, not much happens if it can't grow revenue. It is almost impossible for a company to increase its profits without increasing its sales over long periods of time. Therefore, understanding a company's potential revenue growth is crucial.

For Robinhood Markets, the current quarter consensus revenue estimate of $672.16 million suggests a year-over-year change of +43.9%. For the current and next fiscal years, estimates suggest $2.64 billion and $2.89 billion, respectively, and a change of +41.4% and +9.8%, respectively.

Most recently reported results and surprise history

Robinhood Markets reported revenue of $682 million in its most recent reported quarter, a change of +40.3% year-over-year. Earnings per share for the same period were $0.21, compared to $0.03 a year ago.

Compared to the Zacks Consensus Estimate of $631.18 million, reported revenues represented a surprise of +8.05%. The EPS surprise was +40%.

The company beat consensus EPS estimates in each of the last four quarters. The company topped consensus revenue estimates three times during that period.

Evaluation

No investment decision can be efficient without considering a stock's valuation. Whether the current price of a stock accurately reflects the intrinsic value of the underlying business and the company's growth prospects is a key factor in future price performance.

When comparing the current values ​​of a company's valuation multiples, such as: B. Price-earnings ratio (P/E ratio), price-sales ratio (P/S) and price-cash flow (P/CF), with its own values. Historical values ​​can be used to determine whether the stock is fair, overvalued or undervalued is. Comparing the company with its competitors based on these parameters gives a good impression of the appropriateness of the share price.

The Zacks Value Style Score (part of the Zacks Style Scores system), which considers both traditional and unconventional valuation metrics to rank stocks from A to F (an An is better than a B; a B is better than a C); etc.) is very helpful in determining whether a stock is overvalued, correctly valued or temporarily undervalued.

Robinhood Markets receives a grade of F in this regard, indicating that the company trades at a premium to its peers. Click here to see the values ​​of some of the evaluation metrics that determined this grade.

Conclusion

The facts discussed here and much other information on Zacks.com could help determine whether or not the market excitement surrounding Robinhood Markets is worth paying attention to. However, its Zacks Rank #1 suggests that it could outperform the broader market in the near term.

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