Investing.com -- Morgan Stanley (NYSE:MS) analysts have upgraded Robinhood (NASDAQ:HOOD) stock to Overweight from Equal Weight on Monday, and more than doubled their price target from $24 to $55.
The Wall Street firm cited several factors supporting its bullish outlook, including stronger post-election retail trading activity, a favorable regulatory environment, and the company's strategic initiatives to broaden its platform.
Robinhood stands as one of the top beneficiaries of the US election outcome, which could ease regulatory pressures and foster growth in cryptocurrency trading and other financial services.
"Animal spirits post-election associated with deregulation and recovery in M&A, and eventually IPOs, likely lead to a robust retail trading environment into 2025," analysts led by Michael J. Cyprys said.
Crypto-related revenues, which accounted for 13% of the firm’s total revenue in the last twelve months, are projected to more than double to $700 million by 2027 under a more favorable regulatory regime.
Morgan Stanley anticipates Robinhood achieving a 15% compound annual revenue growth rate (CAGR) through 2027, driven by enhanced retail engagement and new initiatives, including the acquisition of an RIA custody platform.
This acquisition is expected to expand Robinhood's total addressable market (TAM) and provide long-term revenue opportunities. Other growth drivers include the rollout of an expanded active trader platform and initiatives targeting retirement accounts, credit cards, and European expansion.
Valuation is a key component of Morgan Stanley's thesis. Robinhood's shares are currently trading at 10x EV/sales, a discount compared to peers like Interactive Brokers (NASDAQ:IBKR) (14.5x) and Coinbase (NASDAQ:COIN) (13.6x). The new price target reflects a 14x EV/sales multiple, with analysts seeing 50% upside potential from the current price.
“We see HOOD shares re-rating supported by an earlier-stage business against a large market opportunity as HOOD moves to expand their market presence and generates robust revenue growth,” analysts wrote.
The December 4 investor day is highlighted as a potential catalyst, where management is expected to outline its long-term vision.
Despite a strong year-to-date performance, with shares up over 100%, Morgan Stanley believes Robinhood's innovation and market expansion strategies could provide substantial upside.
Morgan Stanley's bull case suggests a price as high as $85, assuming accelerated platform adoption and robust revenue growth. However, in a downside scenario marked by weaker retail engagement, the price could fall to $13.