Cathie Wood is one of my favorite investors to follow, for a number of reasons. Most notably, she's a well-recognized growth investor who leaped to fame after the 2021-pandemic era surge of many of her high-growth investment stocks.
Nevertheless, she's also an active and transparent manager of a number of growth ETFs. In posting her daily trades, she gives investors clarity into her near-term direction.
This past week, Wood made some big moves in her portfolio, most importantly buying the recent dip in Robinhood (HOOD).
Let's dive into the reasoning behind this move, and the direction that this stock could be headed from here.
Why Did Cathie Wood Load Up On Robinhood?
Cathie Wood is the queen of betting big on disruptive innovators, and Robinhood fits that bill perfectly as the fintech disruptor shaking up Wall Street's old guard.
With Robinhood taking a beating due to a drop in crypto revenue (a 38% year-over-year decline on this line item), the pullback in Robinhood shares is certainly an intriguing one for an investor like Wood who wholeheartedly believes in the future of digital assets. Indeed, this is the kind of pullback that sends retail panic-sellers running. But not Cathie. ARK Invest Innovation ETF (ARKK) loaded up with over 433,000 shares across ETFs like ARKK, ARKW, and ARKF. This move was worth tens of millions at prices near $77-$123 per share, right in the teeth of that weakness. This move mirrors her long-term playbook in buying growth names when fear creates discounts. We've seen this in the past when Wood has bought dips in HOOD stock, often in larger increments.
Sure, crypto trading volumes tanked, but Wood is looking beyond the headline noise. Robinhood is evolving into a full-spectrum financial powerhouse. Think commission-free trading, margin lending with an $18.4 billion book, Gold subscriptions, banking, retirement, and credit products. ARK's weekly recap vibes with this, parking heavily in crypto-linked fintech amid rotations into AI, healthcare, and blockchain plays while dumping Airbnb (ABNB), Pagerduty (PD), and Pinterest (PINS). HOOD's user growth and diversification scream multi-year upside in a digitizing world.
Will This Contrarian Strategy Pay Off?
It's hard to disagree with the narrative that Robinhood's fundamentals have weakened considerably. Indeed, the numbers shown below are being taken down by a range of analysts, following the company's recent results.
On a forward basis, Robinhood stock still doesn't look overly expensive, with a price-earnings ratio os 31.46 times. Compared to other top tech names in the market, that's a reasonable valuation. And if cryptocurrencies surge across the board, this could certainly be a buying opportunity other growth investors may bemoan missing out on.
Yet, it's true that the downward trajectory taken by most major digital assets lately is concerning to many investors, who are now focusing their efforts elsewhere. With the rise of artificial intelligence, machine learning, automation, robotics, and plenty of other trends to invest in, there's no shortage of places to put growth capital to work right now. Thus, I think a big part of the reason why Robinhood is down recently is the sheer demand for growth capital in this market.
It's entirely possible that we could see a turnaround in the coming quarters, as mentioned. But for now, this move is one that's going to raise some eyebrows, with other experts not aligned with Wood's view right now.
What Do Other Analysts Think?
Wall Street analysts still have a broadly bullish outlook on HOOD stock, with a consensus price target of $127.85.
However, it's true that many of these projections were put in place before Robinhood's recent earnings reports, which could mean that downward revisions to price targets could provide further fuel for this ongoing selloff. We'll see. For now, Wood appears to be among the more bullish analysts (with one analyst placing a whopping $180 price target on this stock, implying a possible near-double-up from here).
I'm not sure about this bet, to put it mildly. While Cathie Wood and others are touting Robinhood as an example of undervalued innovation, we'll have to see if the market ultimately comes to the same conclusion. For now, I'm going to sit on the sidelines and wait to see how the narrative unfolds for the next quarter or two.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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