Why Did Robinhood Stock Surge 24% Yesterday?

The commission-free trading platform has surpassed its IPO price from last week, but is there a lesson for Robinhood investors here?

Aug. 4, 2021

“Be fearful when others are greedy, and greedy when others are fearful.” — Warren Buffett

Robinhood (NASDAQ: HOOD) shares surged 24% yesterday to close at $46.80 per share — well above the $38 IPO price it set on its debut last Thursday.

But was there actually any reason?

Why are Robinhood shares soaring? 

Does anyone ever truly have an answer as to why anything happens? 

Yes, actually, and in this case, despite absolutely no catalyst in the form of company-specific news, there is a reason for Robinhood shares soaring yesterday. It has been the second-most discussed name on Reddit’s /WallStreetBets forum over the past 24 hours and it was the third most-traded stock by self-directed retail investors on Fidelity.

These are usually good indicators of a stock’s contemporary popularity amongst retail traders, but also an indicator of another potential status:

Meme stock.

If you’re not sure, meme stocks are usually businesses popular amongst millennials and Gen-Z that are prone to high volatility with valuations based around potential rather than financials and are widely discussed on forums like Reddit.

Now, it might be too early to call Robinhood a meme stock, but the irony is too delicious to ignore, as it was Robinhood that allowed for the creation of such situations among the likes of GameStop and AMC via its own platform. 

Meme stock or not, Robinhood investors should be wary of massive moves such as we saw yesterday, as it is a strong indicator of further volatility to come. Between founder Vlad Tenev’s 22 million Twitter followers, the popularity of its trading app — as well as having given roughly 25% of its IPO shares to its own clients — paired with general post-IPO noise, there will be a lot of movement for Robinhood. 

Investors might want to consider our ‘wait-two-quarters-before-buying’ strategy for this one.

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