Summary Robinhood's explosive growth and profitability have reignited retail investor enthusiasm, but the current valuation is unsustainably high versus peers. Transaction-based revenue is highly cyclical, and past declines suggest future growth rates may disappoint despite recent momentum. At 25x sales, Robinhood trades at a massive premium to Schwab and Interactive Brokers, making downside likely as multiples compress. Despite product innovation and user engagement, I am downgrading HOOD to a sell, expecting valuation to revert closer to industry norms. The bubble—and the memes—are officially back. It feels like we have come full circle when we see Robinhood ( HOOD ) leading the way as one of the more popular retail stocks. The company indeed has done an incredible job of sustaining rapid growth rates and capitalizing on a booming bull market. The stock’s valuation indicates that investors expect the good times to continue, but I expect cyclicality to negatively impact growth rates in a big way. With the stock trading at an unjustifiably large premium to peers, I am downgrading the stock to a sell rating. HOOD Stock Price I last covered HOOD in June , where I downgraded the stock due to valuation. The stock has soared 40% since then. Data by YCharts I view the current market as being one in which “the fear of missing out” runs rampant. This rally upwards is cause for another downgrade. HOOD Stock Key Metrics HOOD is a popular brokerage firm largely catering to retail investors. The company briefly saw a reputational hit from the initial meme stock craze but appears to have since revitalized its image through product innovations, promotions, and perhaps the gift of time. HOOD has seen rapid growth in its premium Gold membership and appears to be benefiting from a more engaged user base. 2025 Q2 Presentation The company saw net revenues jump 45% YoY in the second quarter to $989 million, powered mainly by continued growth in transaction-based revenues. It is worth noting that HOOD had seen a near-term transaction revenue peak at $451 million in the second quarter of 2021. If you wondered if we will ever get back to the mania of 2021, there’s no use wondering any longer. Of course not all of the gains are strictly cyclical, and many may be due to a larger user base and more products, but one mustn’t forget the inherent cyclicality in transaction-based revenues—the company had seen transaction-based revenues decline viciously in 2022 with a slow recovery into 2023. 2025 Q2 Presentation HOOD has also seen profitability shift into hyperdrive, with adjusted EBITDA jumping 82% YoY to a 56% margin. 2025 Q2 Presentation HOOD ended the quarter with $4.3 billion in cash versus no corporate debt. Their cash balance has been steadily declining in recent quarters due in large part to both their share repurchase program as well as M&A. 2025 Q2 Presentation Regarding that first point, the company repurchased $124 million of stock in the quarter, bringing their trailing twelve-month total to $700 million. 2025 Q2 Presentation On the conference call , management discussed their controversial stock tokens, which made a big splash in Europe in early summer . Management stated that they believe that these tokens are “the biggest innovation in capital markets in over a decade” with the potential to do “for stocks, what stablecoins did for fiat currencies.” Management noted continued optimism for growing their famous gold card while also hinting at a private banking product in the future, which has already been released internally. Is HOOD Stock A Buy, Sell, or Hold? HOOD might seem buyable here as the torrid growth may appear to offset the lofty valuation. The stock recently traded hands at an incredible 23x sales. For reference, Charles Schwab ( SCHW ) recently traded hands at around 8x sales. Interactive Brokers ( IBKR ) traded hands even lower at around 5x sales. Seeking Alpha Here’s the problem: the company has been posting very strong growth for quite some time and is well past due to meeting the headwinds from tough comparables. Seeking Alpha Some might think that consensus estimates for 19% growth in 2026 look too conservative, as they might think that growth can even continue to accelerate. I think differently: that projected growth rate might even prove too optimistic, as headwinds from tough comparables might simply be too much to overcome. I again point to the potential cyclicality in transaction-based revenues as being another headwind. Even if HOOD hits consensus estimates for the next 2 years, it still would be trading at around a 140% premium to SCHW (but for the latter based on 2025 numbers). In this case, HOOD’s appeal might end up working against it, as the brokerage was formerly known as being one of the few to have commission-free trades. The brokerage industry has long been working towards reducing expenses and fees for customers and instead focusing on increasing assets on the platform. If you’d allow my digression, I view HOOD as being similar to what iRobot ( IRBT ) and its Roombas are to the robotic vacuum industry. Sure, they tend to come first with product ideas and innovations, but those measures tend to be easily and quickly replicated by competition over time. Perhaps one might point to popularity as being a sustainable advantage, but even then I doubt that it will help the company to exceed the double-digit growth rate projected for SCHW for long enough to justify the rich premium. Over time, I expect HOOD to see its premium compress all the way down to SCHW levels, implying considerable downside even as the company continues growing rapidly over the coming years. HOOD Stock Conclusion HOOD has proven the doubters wrong as it has made a splashy return to explosive top-line growth and GAAP profitability. The company appears to be establishing itself as a leading brokerage firm for years to come. But with the stock trading at such an aggressive valuation, I expect the stock to come under great pressure as it inevitably falls to trade in-line with peers. In spite of the strong fundamental momentum, I am downgrading the stock to a sell rating.
