This Unstoppable Stock Has 150% Upside, According to a Select Wall Street Firm -- but I'm Not Buying It

The financial markets had a spectacular year in 2024. Every major U.S. stock index soared to an all-time high, and even the total value of the cryptocurrency market set a new record of $3.9 trillion. Robinhood Markets (NASDAQ: HOOD) cashed in on the euphoria as trading activity surged across the board on its investing platform throughout the year.

As a result, Robinhood stock is up by a whopping 115% over the past 12 months, and Wall Street is growing increasingly bullish on the company's prospects. The Wall Street Journal tracks 21 analysts who cover the stock, and the majority have assigned it the highest possible buy rating, with none recommending to sell.

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One prominent Wall Street firm, Bernstein, even thinks the stock could soar by another 150% from its current price. Here's why I'm skeptical.

Image source: Getty Images.

A sense of déjà vu

Robinhood generated a record $1 billion in total revenue during the fourth quarter of 2024. There are two primary components to that figure: transaction revenue, which comes from commissions the company earns when processing trades for its clients, and net interest revenue, which the company earns on its cash reserves, the cash it holds for clients, and on margin loans.

Transaction revenue is the more important piece, because it reflects how much money Robinhood is making from its core business. It came in at a record $672 million in the fourth quarter of 2024, representing incredible year-over-year growth of 236%. However, more than half of that came from processing cryptocurrency trades alone -- this segment generated $358 million in transaction revenue, which was up by a staggering 733% compared to the year-ago period.

Investors who owned Robinhood stock back in 2021 might be feeling a sense of déjà vu, because the company's cryptocurrency revenue soared by 4,560% in the second quarter of that year, and accounted for more than half of total transaction revenue. But that momentum quickly faded, and exactly one year later, crypto revenue was down by 75%.

The conditions that fostered the incredible growth in Robinhood's crypto business during 2021 weren't sustainable. The market was euphoric at the time -- it wasn't just Bitcoin moving higher, but a whole host of meme tokens like Dogecoin and Shiba Inu as well. They were riding a wave of speculation that resulted in an inevitable crash in 2022, taking Robinhood's crypto revenue down with it.

The market happens to be in a similar situation right now. After most cryptocurrencies staged a powerful rally in the final quarter of 2024, investors are now nursing steep losses. Dogecoin is down by 64% from its 52-week high, Shiba Inu is down 61%, XRP (Ripple) is down 35%, and even Bitcoin has lost 22% of its value. As a result, I won't be surprised if Robinhood's crypto transaction revenue plunged sequentially in the first quarter of this year.

Falling interest rates also pose a threat to Robinhood's growth

Net interest revenue became a key part of Robinhood's business after the Federal Reserve aggressively hiked interest rates during 2022 and 2023, and they now account for almost 30% of the company's total revenue. In 2021, prior to the hikes, that figure was just 14%.

During the fourth quarter of 2024, Robinhood earned interest on its own cash reserves of $4.3 billion, and on the $4.7 billion in cash it was holding for its clients. The company also had a record $7.9 billion in outstanding margin loans at the end of the period, which was up by a whopping 126% on the year. All told, total net interest revenue came in at $296 million in Q4.

While all of that sounds great, this part of Robinhood's business could soon face significant declines. The Fed has cut interest rates three times since September last year as inflation is now under control, and there are even more cuts forecast for this year. Lower rates will erode Robinhood's net interest revenue over time, and the declines could offset some of the growth in the company's transaction revenue.

Could Robinhood stock soar by another 150%?

As I mentioned at the top, the analysts at Bernstein think Robinhood stock could soar by 150% to reach $105 over the next 12 to 18 months. Robinhood's incredible fourth-quarter growth is a key reason why, but the firm also cited new products like Robinhood Strategies, which uses artificial intelligence (AI) to provide low-cost financial advice to its users. It's still in the early stages, but it will help the company expand its investor base over the long term.

But considering the downside risks to the company's crypto revenue and net interest revenue in the near term, I'm a bit skeptical that the stock can reach $105. After all, it currently trades at a price-to-sales (P/S) ratio of 13, which is a whopping 56% premium to its long-term average of 8.3 dating back to when the stock went public:

HOOD PS Ratio data by YCharts

In other words, if Robinhood can't maintain its triple-digit-percentage growth in its transaction revenue over the next few quarters, I think its stock is likely to decline until its P/S ratio lines up with its historical average.

According to Yahoo! Finance, Wall Street's consensus estimate suggests Robinhood could generate $3.7 billion in total revenue in 2025. That places its stock at a forward P/S ratio of 10, so it would still be expensive at the end of this year even if the company hits Wall Street's revenue target.

I'm not convinced Robinhood stock will come anywhere close to Bernstein's price target in the foreseeable future, so I'm staying on the sidelines.

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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin and XRP. The Motley Fool has a disclosure policy.