Robinhood Markets Inc (NASDAQ: HOOD) has pushed higher in recent sessions following news that it will replace Caesars Entertainment on the benchmark S&P 500 index on September 22nd.
Investors are cheering HOOD shares primarily because index inclusion triggers automatic buying from passive funds – resulting in a notable increase in demand that often leads to stock price gains.
Evidently, index inclusion marks a major milestone for the retail brokerage that once symbolized pandemic-era trading mania.
Still, investors are recommended treading with caution on Robinhood stock for several reasons. A few of them are discussed below.
Robinhood stock is already priced to perfection
HOOD shares https://invezz.com/reviews/robinhood/ remain unattractive despite index inclusion mostly because of valuation concerns. The fintech stock is currently going for a forward price-to-earnings (P/E) ratio of about 66 – which is well above the industry average.
In fact, it even trumps the multiple on some of the top AI stocks, including Nvidia, that’s going for 41 only at the time of writing. This suggests Robinhood shares are priced to near-perfection in the second half of 2025.
Its premium valuation reflects aggressive assumptions about future growth, margin expansion, and crypto resurgence.
While index inclusion often proves a meaningful catalyst for a stock – investors should note that HOOD shares are already up some 150% versus their April low, indicating much of the optimism is already baked into them at current levels.
Passive fund inflows from S&P 500 inclusion may offer short-term support, but they don’t change the underlying math. At current levels, Robinhood leaves little room for error – and even less for upside surprise.
Why else are HOOD shares not worth owning
Investors should practice caution in loading up on Robinhood shares at current levels also because the financial technology company’s business model remains vulnerable to regulatory scrutiny and product concentration.
Its recent lawsuit against Nevada and New Jersey regulators over event contracts underscores ongoing friction with state authorities.
Meanwhile, crypto trading, despite expansion and rapid growth, still makes up only one-fifth of HOOD’s overall business. Meanwhile, its options trading business faces regulatory headwinds and cyclical risk as well.
Unlike diversified brokerages, Robinhood’s reliance on a narrow set of products and a retail-heavy user base makes it susceptible to sudden shifts in sentiment or policy. Inclusion in the S&P 500 doesn’t insulate it from these structural fragilities.
Moreover, the financial services industry is broadly known for healthy dividend yields, but HOOD shares lack that appeal in the second half of this year as well.
Wall Street’s take on Robinhood shares
Investors should also note that Wall Street firms no longer see significant further upside in HOOD stock either.
At the time of writing, the consensus rating on Robinhood shares remain at “moderate buy”, but the mean target of about $115, according to Barchart, indicates potential upside of only 6.0% from here.
In short, while passive fund flows following S&P 500 inclusion is often a tailwind – long-term investors should be wary of chasing the momentum.
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