How the mighty have fallen. In this case, I am referring to former cult stock Robinhood Markets (HOOD) , which had a very brief tenure in that role.
It's hard to believe Robinhood has not even been public for a year. It made its debut last July 29 at 38a share. On Aug. 4. HOOD hit $85 intraday and closed at $70.39. It has been been downhill ever since.
One of the most anticipated initial public offerings of 2021, Robinhood's stock has been an epic flop and now finds itself in a place no stock would ever go by choice -- net-net land. That's right. Robinhood now trades below net current asset value, or NCAV, defined as current assets minus total liabilities. As of Tuesday's close, Robinhood trades at 0.95x NCAV and is among the largest net-nets by market cap that I've seen in the 25-plus years I've been studying the concept.
Trading below net current asset value could imply several different possibilities, but I'll narrow it down to just two. The first would be that a stock is incredibly cheap and has been overly punished by investors who have given up on it; in other words, it is oversold. It's not that a name in this case is without some fleas; to be pushed down to below NCAV usually means there are some serious issues. However, the market's overreaction can be an incredible opportunity for the patient deep value investor with an iron stomach to pick up a bargain.
Alternatively, the stock could be a falling knife, where the fundamentals continue to decline, thus justifying the low level of price to NCAV. Keep in mind that fundamentals, and specifically balance sheet data used to calculate NCAV, are only issued quarterly, so a company in distress could see the "good" components (current assets) of NCAV decline from quarter to quarter and/or the bad components (total liabilities) continue to increase. Balance sheets are not set in stone, and the data do fluctuate. Not recognizing that fact, especially with a company that is losing money and is in other distress, is akin to driving a car while looking in the rear view mirror.
In its most recent reported quarter, which was its fiscal first quarter, Robinhood saw its monthly active users fall 8% to 15.9 million. With markets falling and the newer investors that Robinhood attracts perhaps not ever experiencing a bear market, this is not a great environment to attract new accounts. While revenue is expected to increase from 2021's $1.8 billion to $2.5 billion by 2024, Robinhood is not expected to be profitable in any of its next three fiscal years.
Maybe there is some money to be made by trading Robinhood by adept traders, but that's not my game. At this point, I am not comfortable dumpster diving for HOOD and I put it more in the falling knife category than in the bargain category.
