Should you buy or sell Robinhood shares after an underweight rating from JPMorgan?

On Monday, Robinhood Markets Inc. (NASDAQ:HOOD) shares surged more than 5% despite receiving a rating downgrade from JPMorgan analyst Kenneth Worthington, citing the company’s unsustainable growth prospects.

In a note to investors, Worthington wrote:

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We question the ability of the company to generate competitive margins over time given the focus on such small accounts that have limited room to be profitable. [Robinhood is] inferior to larger existing participants that have been able to leverage peer-to-peer and payments technology to build and leverage a compelling network.

The analyst also assigned a price target of $35.00 per share, implying a downside potential of about 18% from its closing price last week.

Should you buy or sell Robinhood shares in Q3 2021?

From a valuation perspective, Robinhood shares trade at a relatively steep forward P/E ratio of 42.64, making the stock less attractive to value investors. However, its growth prospects look exciting, with analysts predicting earnings per share to grow by 102% this year before increasing 171% next year.

Therefore, growth investors could find the HOOD stock compelling ahead of its exciting growth story. However, although the consensus Street expectation is bullish, JPMorgan analysts warned about the potential unsustainability of Robinhood’s growth expectations.

As a result, investors should monitor how the stock performs this year before investing long-term in HOOD shares. The next few quarters will be exciting to watch.

Technical overview: Robinhood stock price predictions for Q3 2021

Technically, Robinhood shares seem to have recently bounced off a key support level in the hourly chart. As a result, the HOOD stock price has rallied to avoid dropping to oversold conditions of the 14-hour RSI. 

However, it is yet to hit the overbought levels of the strength index indicator, leaving more room for upward movement. Therefore, investors can target short-term profits at approximately $47.25 or higher at $51.14. On the other hand, the key support levels are $42.06 or lower at $37.77.

Bottom line: the case for buying Robinhood shares short term

Although Robinhood shares seem steeply valued based on the forward P/E ratio, the recent earnings beat and the current upward momentum seem poised to boost the bull run. 

Moreover, the stock price is far from reaching overbought conditions, leaving room for more gains. Therefore, investors can target HOOD’s short-term gains while monitoring its growth prospects versus actual results in the coming quarters to determine the right time to sell.

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