That’s what I heard two CNBC commentators suggesting as I was eating lunch and watching prices the other day. Their second suggestion was that HOOD is a (full-blown) meme stock, meaning that it has no intrinsic value but rather is a plaything for Roaring Kitty and other online day traders.
These ferret out stocks that have little or no intrinsic merit, hopefully heavily shorted, and play a game of pushing them up and down. Their aim is to profit from the resulting panicky, loss-making short-covering by hedge funds.
Meme stock was the case for HOOD, I think, when the company went public at $38/share about three years ago. It broke above $80/share almost immediately …and then began to drop like a stone, bottoming below $8 in mid-2022.
The stock stayed there until late least year. Since then it’s been rising relatively steadily.
my thoughts
–I may be biased here, since I own a small number of shares of HOOD, which I’ve traded in and out of. At this point I’m more a seller than a buyer, but I’m in no hurry, and I may well change my mind
–if we look at trading data, the short interest in HOOD is a bit less than 7% of the float. At current volume, this would take just under two days to cover.
The overall short interest for the S&P 500 is 1.8% of the float, and is about 3.5% for stocks of HOOD’s size. But in a world where short interest of 10% is the first signal to start worrying, I find it hard to understand how one would characterize HOOD as a meme stock
–yes, in its early days HOOD was a mess. Even so, it was immensely popular with younger stock market participants, an audience traditional Wall Street has had virtually no success in attracting.
–The company has hired professional management, which (again, my view) has by now eliminated HOOD’s early shortcomings, while retaining its allure for younger investors
–trying to use asset value to assess valuation, we know there have been a couple of acquisitions of smaller discount brokers in the recent past. The selling price has been about 2.5x book value. If we apply this metric to HOOD’s bv of ~$8/share, we get a first estimate of potential value at $20. Given HOOD’s unique appeal to a desirable clientele, its fast growth and its expansion into credit cards, $20 is more likely, I think, a floor than a ceiling, at least in a sideways-to-up market.
what about CNBC?…
If this were the sports world, a show would have an announcer as the star but also surround that person with a number of former professionals to provide analysis of team strategy and comments on execution. CNBC doesn’t have the second, at least as far as I can see. Historically, I think, it has relied on the big brokerage companies to provide copies of their strategy documents and stock recommendations as the core professional input for their commentators’ use. Brokers would do so in the expectation of getting a mention, what would be called a third-party endorsement, of their firm and/or the analysts who prepared the information used on the show. That source of information appears to me to have dried up,