PreMarket Prep Tackles Robinhood Markets Downgrade: ‘Dumbest Thing Ever’
For the second day in a row, a major Wall Street firm has downgraded a company to Sell.
Ahead of Friday’s opening, Goldman Sachs analyst Will Nance demoted Robinhood Markets HOOD from Neutral to Sell and announced a price target of $13. The nature of the rating and the price target make Robinhood the pre-market readiness stock of the day.
Understanding Wall Street Ratings: One thing to keep in mind is that Wall Street company ratings on individual companies are meant to be used on a relative basis.
In other words, when a rating is announced, it draws a comparison with other companies in the industry. Therefore, when Goldman Sachs downgraded Robinhood to Sell, it was a stark warning to investors that if an investor wants to play in the brokerage business, there are far better options.
A word about price targets: Just as the words imply, a price target is an analyst’s future price of a security. Essentially, a stock’s price target is an analyst’s attempt to determine the value of the stock over the next 12 to 18 months.
Price targets are based on company valuation. Therefore, large increases or decreases in earnings and revenue will have a corresponding effect on the analyst’s price target. Many price target adjustments are announced following the company’s earnings report.
A confusing price target for Robinhood: After recently trading at $16.49 on March 29, the show closed Thursday’s session at $12.07. Along with the downgrade, Goldman Sachs has set a price target of $13 on the issue. To the co-host of PreMarket Prep Denis Dickit makes no sense on a strictly numerical basis.
“It’s the dumbest thing ever. If you see a stock is $12 and you come in with a sell quote, don’t tell me it’s going to $13,” he said. he declares.
“If it’s at $12 and it goes to $13, that’s higher, about a 10% gain.”
Wall Street makes things too confusing, Dick said.
“If a stock is at $12 and you give it a sell rating, put at least a lower price target.”
The Robinhood discussion from Friday’s show can be found here:
HOOD Action on prices: Investors are choosing to put more emphasis on the sell rating than the company’s $13 price target.
After opening lower ($11.46 from $12.07), Robinhood saw a brief rally to $11.69 and resumed its decline.
The ensuing decline took the issue to $11.06 and it was not far off that level by the end of Friday’s session, trading down 5.34% to $11.42, according to Benzinga Pro.
After peaking on its fifth day of trading at $85 last August, the show hit an all-time low in February at $9.93.
Photo courtesy of Robinhood.