PreMarket Prep Stock Of The Day: Robinhood Markets

Being a contrarian in the markets can be dangerous. If your conviction is executed along with a favorable risk-reward ratio, it can be very rewarding.

Our co-host Dennis Dick and producer Spencer Israel found a silver lining in Robinhood Markets Inc. HOOD — despite its fourth-quarter report — during Friday’s broadcast, making it the PreMarket Prep Stock of the Day.

Robinhood's Pop And Drop: After ending its inaugural trading session on July 29 at $34.83, the issue put in a double bottom at the $33.80 area and embarked on a spectacular rally. Once the issue surpassed its high from the session ($40.25), on Aug. 3, it more than doubled when it peaked on Aug. 4 at $85 and posted its all-time closing high that day at $70.39.

Sold To You: Before the opening on Aug. 5, in what could turn out to be the greatest inside sell of all time, Robinhood filed with the SEC a preliminary prospectus on Form S-1 for offering up to 97.876 million shares of its Class A common stock.

These shares were offered by selling shareholders following the automatic conversion of certain convertible notes held by selling stockholders in connection with the initial public offering.

During that session, the issue declined from $70.39 to $50.97.

Robinhood's Dead Cat Bounce: The issue rebounded back to the $60 area over the next few days, but could not hold. Once it breached the $50 level for good on Aug. 18, the slow roll south was on.

When the initial IPO low was breached in mid-November, the pace of the decline accelerated.
Year-end tax selling took it lower and lower, and when the “January effect” failed to materialize, there was a parade of sellers. On Thursday, the issue posted its all-time closing low at $11.61.

Robinhood's Q4, PreMarket Prep's Take: After the close on Thursday the company reported quarterly losses of 49 cents per share, which missed the analyst consensus estimate of a 45-cent loss. The company reported quarterly sales of $363 million, which beat the analyst consensus estimate of $362.14 million. 

Dick and Israel were adamant that eventually Robinhood company may get low enough in price that it would be a viable takeout candidate. Of course, if, when or what price could occur was difficult to determine.

Their thesis was based on the fact that the company has built a young customer base that would accumulate money to invest over time.

The author of this article was not so convinced, but noted that the premarket action was indicating a big buyer(s) at the $10 area.

The full discussion on the issue from Friday’show can be found here:HOOD Price Action Off The Open: The issue opened just under $10 and immediately bottomed at $9.94 and has embarked on a massive rally.

As of 1:15 p.m. EST, it had surpassed Thursday’s high ($12.66), reaching $12.85, and has now retreated to the $12.50 area. If the rally continues, there is a pair of daily highs from Tuesday and Wednesday at the $13.50 area.

The stock ultimately closed 9.65% higher at $12.73. 

Photo courtesy of Robinhood.