Citi’s Downgrade: Citi has downgraded Robinhood $HOOD from “Neutral” to “Sell” while simultaneously raising its price target from $13 to $16.
Reasoning: Bitcoin’s Influence: The downgrade is primarily attributed to Bitcoin’s influence on Robinhood’s performance, as explained by analyst Christopher Allen.
Stock Performance: Despite a 44% increase in Robinhood’s stock price Year-to-Date (YTD), Allen points out that this surge is highly correlated with the fortunes of Bitcoin, with a staggering 92% correlation in 2024.
Revenue from Cryptocurrency: Despite the significant correlation, cryptocurrency transactions are projected to constitute only around 13% of Robinhood’s revenue for the first quarter.
Concerns Over Valuation: Allen expresses caution regarding the stock’s valuation, suggesting that it has outpaced the fundamental outlook. This concern is particularly amplified due to the uncertainty surrounding the upcoming Bitcoin halving event expected later this month.
Bitcoin Halving Event: The halving event traditionally leads to an increase in Bitcoin’s value, but its impact this time remains uncertain due to Bitcoin’s recent rally.
Rally Sustainability: The analysis reflects concerns over the sustainability of Robinhood’s stock rally should Bitcoin prices retract.
Skewed Risk/Reward Balance: Citi believes that the increase in stock price has resulted in a disconnection from the fundamental outlook, leading to a skewed risk/reward balance despite recent improvements in Robinhood’s fundamentals.
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