Could Buying This Financial Stock Today Set You Up for Life?

Robinhood Markets (NASDAQ: HOOD) stock was on a roll until last year, but it's now 43% off its high. The financial stock is growing at a fast pace, and management continues to innovate to capitalize on its opportunities. Is the market underestimating it?

Let's take a look at what's driving growth, whether or not this is a rare buying opportunity, and whether or not Robinhood stock can set you up for life.

The top platform for active trading

Robinhood's equities trading platform attracted attention as the platform of choice for the meme stock movement, and it gained admiration for its no-fee trades that bring the stock market to every retail investor. That has caught on throughout the markets, breaking down barriers in investing for the masses.

Image source: Getty Images.

It's taking that open approach in many new directions, some of which have been more positive for the company than others. Its products have gotten riskier, like cryptocurrency trading and prediction markets. Cryptocurrency trading was propping up total revenue growth last year when Bitcoin was having a moment, but it's been a drag this year as Bitcoin drops; segment revenue decreased 38% from last year in the second quarter.

Prediction markets, on the other hand, drove revenue growth in the second quarter. Event contracts revenue increased tenfold in the second quarter to $156 million.

Core equities trading was also fantastic in the second quarter, an outstanding quarter for the market; the S&P 500 gained 15% in the quarter, and Robinhood's equities trading revenue increased by 95% over last year.

Becoming a financial powerhouse

Robinhood added 1.9 million funded accounts in the second quarter, a 7% year-over-year increase, which is modest growth for a young disruptor. It is converting its activated consumer base into loyal customers, though, and it added 1.5 million new customers to its Gold membership program, a 39% increase over last year.

It's also branching out into more traditional financial products that should add more stability to its platform, which is gaining much of its growth from riskier products right now. It already offers credit cards and some banking services. It plans to roll out new products and launch in new locations, which it expects will provide constant growth opportunities.

At the current low, Robinhood stock could be an excellent bargain opportunity if you expect the company to keep growing. In 10 to 15 years, it could be a major player in U.S. finance, and buying now offers the greatest potential for gains.

However, if it continues to rely on risky products for growth, it may not take off as expected. Total revenue was growing at triple digits last year, but it increased 32% year over year in the second quarter. It isn't adding customers at a high rate, and it's relying on speculative activity for growth right now. That's not a recipe for solid long-term growth.

I wouldn't count on Robinhood setting you up for life, but if you have a strong appetite for risk, you could take a small position at the current price.

Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.