Looking to buy the Robinhood dip? JPMorgan sees a dire scenario for the stock into year-end

Published Wed, Oct 27 202111:50 AM EDTUpdated Wed, Oct 27 20214:11 PM EDT

Robinhood 's stock is setting up for a tumultuous end to 2021, JPMorgan warned Wednesday. Here's why ... Various lock-up periods for insiders in the newly public stock end during the final stretch of the year. Some insiders are able to sell their shares as soon as Wednesday. This is known by Wall Street and likely adding to the stock's decline during the day. But JPMorgan believes the additional supply will be compounded by the flawed fundamentals just reported by Robinhood, as short-sellers are now likely to get involved in the name, doubling the anticipated selling pressure. "More shares are coming – and we think they could be sold twice," JPMorgan analyst Kenneth Worthington told clients in a note. "Shares are coming to market related to the convertible notes, and we think they are in the money and likely to be sold." "We think selling pressure could be 2x the new supply given supply constraints, as convert holders sell, those shares are borrowed and then shorted," Worthington added. Robinhood is facing the final months of its initial public offering lock-up period, which will be over by Dec. 1. Half of tranche I convertible notes are coming unlocked Wednesday along with some employee shares, which totals about 62 million shares. On Nov. 10, the other half of tranche I — which is about 49 million shares — will be tradable. All shares will be fully tradeable Dec. 1. Many of these shares were bought at a discount, so their holders will make a profit even if Robinhood's stock sits around its IPO price. Shares of Robinhood dropped 10.4% on Wednesday following disappointing third-quarter results that showed a slowdown in crypto trading and user growth . The stock traded below its IPO price of $38 per share . JPMorgan slashed its December 2022 price target on Robinhood to $26 per share from $35 per share, implying a roughly 26% downside for the brokerage. The Wall Street firm cited "substantially lower growth projections lowering our expectations for Robinhood's value per account." JPMorgan isn't alone. Goldman Sachs cut its 12-month target on Robinhood to $42 per share from $56 per share. The firm has a neural rating on Robinhood. Piper Sandler — which has a neutral rating on the stock trading app — also lowered its price target to $38 per share from $47 per share, after lowering its 2023 revenue estimates. Barclays cut its price target to $42 per share from $50 per share. The Wall Street firm has an equal weight rating on Robinhood. Deutsch Bank stuck with its hold rating on the stock and lowered its target price to $40 per share from $42 per share. Rosenblatt Securities — which has a buy rating on the brokerage — cut its target to $50 per share from $55 per share. Wolfe Research lowered its target to $35 per share from $40 per share. Wolfe has a peer perform rating on Robinhood. — with reporting from CNBC's Michael Bloom.

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Robinhood's stock is setting up for a tumultuous end to 2021, JPMorgan warned Wednesday. Here's why ...