Why Robinhood Markets Stock Zoomed 38% Higher Last Month

Robinhood Markets (NASDAQ: HOOD) had a scorching hot September, with its stock rising 38% from beginning to end and trouncing the 3.5% rise of the S&P 500 index. We shouldn't find this too surprising, however, as the next-generation brokerage and fintech has had several strong months since the start of the year. Overall, its share price is up by a blistering 263% year to date (as of this writing).

It's been a popular stock for some time, thanks to its restless search for new revenue streams and innovative ways of thinking about its business. Here's why it did particularly well last month.

Say hello to one of the new S&P 500 index stocks

At the end of the first week of September, the first catalyst occurred to spark the Robinhood rally. S&P Dow Jones Indices, as part of its quarterly index rebalancing, tapped the company's stock to be a component of the S&P 500 index. It displaced casino operator Caesars Entertainment in the move, which became effective Sept. 22.

Inclusion in a well-known stock index -- particularly the S&P 500, which is considered by many to be the benchmark index for equities -- barely affects a company's fundamentals, if at all. However, it raises its profile considerably, and makes it a prime target for the many index funds that comb through top indexes for their investments. This alone provided a nice lift to Robinhood's shares.

Just after S&P Global's announcement, Robinhood posted its usual monthly operational update. Several of the numbers were extremely encouraging -- although there was one fewer trading day in August 2025 compared to the same month last year, many metrics were up sharply.

Equity trading, for one, doubled and then some over that stretch to $199 billion. The action in cryptocurrencies heated up more, although that business is still developing. Its trading volume was just under $14 billion, for a robust 154% year-over-year gain. And this occurred on a 10% rise in the tally of funded customers, which reached 26.7 million.

In other words, Robinhood's client base is growing, and as a group it's spending considerably more on trades.

Innovation drives attraction

Analysts tracking Robinhood stock took notice of these developments, and made bullish adjustments to their takes on the company. This also helped support the positive sentiment displayed by market players.

A typical update was the one from Bank of America Securities' Craig Siegenthaler. In a research note published mid-month, the pundit raised his price target to $139 per share from $119. He also reiterated his buy recommendation on the shares.

Siegenthaler based his revision on a series of presentations the company made at its annual Active Trader Summit in Las Vegas, according to reports. He was clearly impressed by the company's numerous planned product launches, which among others include a social media function (Robinhood Social, naturally) and extended index options trading.

Siegenthaler captured an important essence of Robinhood's success in September -- management's clear hunger for innovation. Over the course of the month, new features were announced, and speculation arose about more.

One in particular that has a shot at becoming a wide revenue stream is short-selling, which the company announced at the summit. At a stroke, introducing this will provide customers access to a classic trading method, giving market bears and hedgers a chance to run free.

Later in the month Bloomberg reported that the brokerage might grant access to prediction markets to its clients located overseas. Robinhood partners with a pair of prediction market specialists, Kalshi and ForecastEx, both of which have done well lately on the back of an increasing appetite for wagering in this country.

Entertaining but expensive

Robinhood is an exciting and dynamic company that's fun to watch. Is it potentially lucrative to own, though?

After all, on valuations it looks super expensive. Its forward P/E is vertigo-inducing at nearly 71, and its price-to-book value is also lofty at more than 16.

Meanwhile SoFi Technologies, a next-generation fintech that isn't directly comparable but bears some similarities, has a forward P/E of 47 and a price/book well under 5. The more traditional and longer established brokerage Charles Schwab's figures for the two ratios are a respective 17 and just under 4.

But of those three companies (and other financial services titles, while we're at it), Robinhood is the one that seems to have its finger more firmly on the pulse of what modern investors want in their brokerage. Many of its offerings have clearly struck a chord with the market, which is likely one reason why more are signing up to trade with the company.

This stock is a bit risky given those high-wire valuations, but I'd say it still has plenty of upside. I'd be a buyer.

Charles Schwab is an advertising partner of Motley Fool Money. Bank of America is an advertising partner of Motley Fool Money. Eric Volkman has positions in Charles Schwab. The Motley Fool recommends Charles Schwab and recommends the following options: short December 2025 $95 calls on Charles Schwab. The Motley Fool has a disclosure policy.