3 Reasons Investors Love Robinhood (HOOD)

Robinhood has been on fire lately. In the past six months alone, the companys stock price has rocketed 115%, reaching $101.00 per share. This was partly due to its solid quarterly results, and the performance may have investors wondering how to approach the situation.

Why Is HOOD a Good Business?

With a mission to democratize finance, Robinhood (NASDAQ:HOOD) is an online consumer finance platform known for its commission-free stock and crypto trading.

1. Eye-Popping Growth in Customer Spending

Average revenue per user (ARPU) is a critical metric to track because it measures how much the company earns in fees from each user. ARPU also gives us unique insights into the average transaction size on Robinhoods platform and the companys take rate, or cut, on each transaction.

Robinhoods ARPU growth has been exceptional over the last two years, averaging 40.9%. Its ability to increase monetization while growing its funded customers demonstrates its platforms value, as its users are spending significantly more than last year.

2. Outstanding Long-Term EPS Growth

We track the change in earnings per share (EPS) because it highlights whether a companys growth is profitable.

Robinhoods full-year EPS flipped from negative to positive over the last three years. This is a good sign and shows its at an inflection point.

3. Excellent Free Cash Flow Margin Boosts Reinvestment Potential

Free cash flow isnt a prominently featured metric in company financials and earnings releases, but we think its telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Robinhood has shown terrific cash profitability, driven by its lucrative business model and cost-effective customer acquisition strategy that enable it to stay ahead of the competition through investments in new products rather than sales and marketing. The companys free cash flow margin was among the best in the consumer internet sector, averaging an eye-popping 67% over the last two years.

Final Judgment

These are just a few reasons why we think Robinhood is an elite consumer internet company, and after the recent rally, the stock trades at 43.2 forward EV/EBITDA (or $101.00 per share). Is now the time to initiate a position?