Robinhood Markets, Inc. (HOOD): A Bear Case Theory
We came across a bearish thesis on Robinhood Markets, Inc. on SixSigmaCapital: Navigating the Financial Markets’s Substack by SixSigmaCapital. In this article, we will summarize the bulls’ thesis on HOOD. Robinhood Markets, Inc.'s share was trading at $106.77 as of July 28th. HOOD’s trailing and forward P/E were 61.01 and 75.76, respectively according to Yahoo Finance.
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Robinhood Markets Inc. (HOOD), known for its commission-free trading and rapid product expansion, has been a beneficiary of the ongoing bull market, but several structural factors suggest growing downside risks. Since Q1 2023, total revenues have surged from $441M to $927M in Q1 2025, with net interest revenues increasing from $208M to $290M and transaction-based revenues climbing from $207M to $583M.
However, more than half of transaction revenues now come from options speculation and crypto trading, both highly cyclical and vulnerable to sharp contractions in a market downturn. Net interest income, which grew as rates rose, faces dual pressure: significant rate cuts are expected once Chairman Powell steps down, and customer cash balances — the primary driver of interest on segregated funds — tend to fall sharply during bear markets.
Together, options, crypto, and net interest revenues accounted for 84% of total Q1 2025 revenues, creating heavy reliance on factors that are prone to mean reversion. Despite impressive recent performance — including 50% YoY revenue growth, >100% EPS growth, and a rule of 40 score above 100 — HOOD trades at a stretched valuation of 27x sales and 57x earnings, leaving it highly exposed if current tailwinds fade.
Technicals confirm an overextended stock, with RSI at 72.2 and trading more than 100% above its 200-day SMA. A cyclical downturn, falling rates, and reduced platform cash could trigger a major correction, setting up an attractive short opportunity once negative divergences in key KPIs or topping patterns appear.
Previously we covered a bullish thesis on Robinhood Markets, Inc. (HOOD) by Chit Chat Stocks in May 2025, highlighting its under-monetized young user base, rising assets under custody, and ARPU growth potential. The stock has appreciated about 64% since, driven by these growth trends. SixSigmaCapital shares a contrarian view, emphasizing revenue cyclicality and valuation risk.
Robinhood Markets, Inc. is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 76 hedge fund portfolios held HOOD at the end of the first quarter which was 79 in the previous quarter. While we acknowledge the potential of HOOD as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.
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