Robinhood is a highflying stock in the market's latest rally, already doubling off its April lows. But buying shares of the brokerage platform at current levels presents notable risk, even as the company flexes its strength after bullish analyst reports and the purchase of a competing cryptocurrency exchange.
"I felt there was a lot of strength coming into the stock," Arnie Gutierrez, senior premium product coach at IBD, told Investor's Business Daily's "Investing with IBD" podcast. Gutierrez currently owns a position in Robinhood.
The stock, a retail trader favorite, extended gains earlier this week amid price target hikes from Bank of America and Morgan Stanley. Robinhood also announced it's acquiring Canada-based crypto platform WonderFi.
Robinhood stock eased in the stock market today, marking a two-day slide, but shares are due for a rest. The stock is still up some 11% for the week.
Robinhood Stock And The Giddy Effect
A supercharged market is giving investors like Gutierrez pause over what he calls the "giddy" effect, where too much hype around a market's rise can blind investors to the risks.
"When you start getting giddy, there's something wrong," Gutierrez said. "When I start feeling like that, time out, wait and let's slow it down a little bit."
If traders start to suspect they're in a too-good-to-be-true market, Gutierrez says that's time to review one's portfolio and consider where to take profits into strength.
In the case of Robinhood stock, Gutierrez says he initially started with a smaller position size ahead of its recent bullish move. "If I find a stock that hasn't really broken out [to recent highs], I may go in and put a smaller position in, let it prove itself to me, then come back in and add."
Robinhood shares are now trading 35% above their 50-day line and 17% above their 21-day line. That's a considerable extension above those moving averages and indicates buying at current levels presents added risk.
Traders who missed the stock's recent run-up may want to wait for a pause or a pullback over the next few days or weeks before jumping in. That could create a lower-risk opportunity to get in or add to existing positions.
Audio Version Of Podcast
Behind The Gains In Robinhood Stock
The WonderFi deal, announced on Tuesday, bulks up Robinhood's crypto offerings and gives Robinhood access to customers of crypto platforms Bitbuy and Coinsquare. The deal values WonderFi at around $250 million CAD.
Meanwhile, Morgan Stanley and Bank of America both raised their price targets on Robinhood stock on Tuesday. Bank of America analyst Craig Siegenthaler cited continued strength in products and a significant user base among Gen Z and millennial investors.
Siegenthaler kept a buy rating on the stock with a 65 price target, up from 60. Morgan Stanley raised its price target on Robinhood stock to 43, up from 40. An equal weight rating was maintained.
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