Robinhood Stock price is too high says JPM: Banks sees 20% Downside

Summary:

If you thought things couldn't get much worse for Robinhood stock, think again, JP Morgan just issued the retail broker's first sell rating.

If you thought things couldn’t get much worse for Robinhood stock, think again, JP Morgan just issued the retail broker’s first sell rating. The bank forecasts Robinhood (NASDAQ: HOOD) will finish the year back at the lows, predicting slow user growth and increasing supply could drive the price down to $35 by year-end.

Not long after Robinhood made its ill-received Nasdaq debut at $38.00 on July 29th, things started to get interesting. By August 5th, Robinhood stock exploded 125% and was changing hands above $70.00. However, ever since, HOOD has performed horribly, and at yesterday’s closing price of $42.08, had given back over 50%. A trend that JP Morgan warns will continue for the rest of the year. The bank highlights two reasons for their underweight stance. Firstly, user growth has fallen off a cliff in the last few months. Since the second quarter, daily active users have dropped 40%, and app downloads are down 78%. Secondly, JPM warns that the end of the early investor lock-up period will lead to selling pressure.

HOOD Price Forecast

Because Robinhood has only traded for three months, the 2-hour price chart doesn’t produce a compelling argument either way, although, it does highlight Robinhood stock’s poor performance. However, the price does appear to be finding support between $38.00-$39.00 and on that basis, if HOOD loses this level, it could encounter selling.

If Robinhood trades below its $38.00 IPO price, it should extend towards JPM’s $35.00 target. Furthermore, if the broader equity weakness persists, an argument can be made for a trip to the $33.29 lifetime low. However, if the stock clears the 23rd of September high at $47.79, it will invalidate the bearish thesis.