Top Wall Street analysts are underwhelmed by Robinhood. Here are their concerns

Published Mon, Aug 23 20216:24 AM EDTUpdated Mon, Aug 23 202110:11 AM EDT

Jesse Pound @/in/jesse-pound @jesserpound

Robinhood has proven popular with young traders, but it still has work to do to earn the approval of some of the top Wall Street analysts. Many investment firms initiated coverage of the newly public brokerage stock Monday, and the reception was lukewarm. Robinhood received neutral or equal weight ratings from several top shops, and even got tagged with a rare underweight rating from JPMorgan's Kenneth Worthington. Worthington set a price target of $35 per share, which is nearly 18% below where Robinhood's stock closed Friday, and said in a note to clients that regulatory risks and the limited upside of small-dollar accounts should hurt the stock. "We see investor recognition of Robinhood's success priced into the value of the shares," the JPMorgan note said. "Furthermore, we see a number of risks including regulation, pricing, and market saturation, and challenges to the business including its focus on smaller accounts that we think limit Robinhood's ability to reach competitive margins and profitability." Many analysts raised regulatory risk as a source of concern, particularly around the controversial payment for order flow practice that is key to discount brokerages like Robinhood. Goldman Sachs analyst Will Nance, who has a neutral rating and $56 price target on the stock, falls into this camp. "While we are constructive on the longer-term story, we are launching at Neutral given 1) near-term uncertainty around the sustainability of retail trading levels, and 2) the ongoing overhang around payment for order flow, which could result in headline risk or in a worst case, significant estimate risk," the Goldman note said. Even some analysts who are bullish on Robinhood long term couldn't bring themselves to recommend it as a buy. Deutsche Bank analyst Brian Bedell, who set a hold rating and a $45 price target on the stock, said Robinhood may be a few years away from where investors can feel confident about its future. "We view HOOD's growth potential as being exceptionally attractive. ... However, we think the stock may be very volatile over at least the next 6-12 months as [management] invests heavily to execute on its growth plan, which may not begin to generate a more predictable revenue growth trajectory for at least 1-2 years," the Deutsche Bank note said. Shares of Robinhood have been jumpy since the stock's initial public offering . The deal priced at $38 per share but fell 8% on its first day. The stock rose above $70 early this month, but closed at $42.64 per share Friday. To be sure, not every Wall Street analyst is hesitant about Robinhood, with some pointing to its potential to become a "single-money app" in the future. Citi's Jason Bazinet gave the stock a buy rating and a $63 target, citing future expansion opportunities. "We see two long-term opportunities ahead. First, Robinhood may expand beyond the brokerage business to become a broad-based money app, including banking. Second, over time, we expect the firm to expand outside the US," the Citi note said. -- CNBC's Michael Bloom contributed to this report.

Spencer Platt | Getty Images

Robinhood has proven popular with young traders, but it still has work to do to earn the approval of some of the top Wall Street analysts.