Robinhood Is Different from Meme Stocks in One Key Way

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Updated Aug. 4, 2021 2:43 p.m. ET / Original Aug. 4, 2021 2:13 p.m. ET

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The Robinhood exertion connected a smartphone

Tiffany Hagler-Geard/Bloomberg

One fashionable meme connected Reddit’s wallstreetbets tract shows 2 radical shaking hands. One asks the different what brokerage they use. “Robinhood,” helium says. The different 1 instantly goes to lavation his hands.

Some meme banal traders whitethorn privation to lavation their hands of Robinhood Markets (HOOD) aft the broker halted buying successful definite blistery stocks successful January, but Robinhood isn’t going anywhere. In fact, the brokerage’s banal seems to beryllium astatine the halfway of the improvement close now.

Little other explains the stock’s enormous two-day gain. After jumping 24% connected Tuesday, Robinhood was up different 46% connected Wednesday, to a caller $68.27.

Is Robinhood a meme stock? The grounds is persuasive. Robinhood has respective things successful communal with different stocks that person changeable higher successful 2021, including beardown involvement from retail investors and important options activity. Like those stocks, its question doesn’t look to beryllium tied to immoderate peculiar portion of news.

Yet Robinhood lacks 1 large constituent that has driven names similar GameStop (GME) to the moon. There is precise small abbreviated involvement successful Robinhood compared with the bullish buying going connected astatine the moment—meaning determination is apt nary abbreviated compression astatine play. Short squeezes forced GameStop, AMC Entertainment Holdings (AMC), and BlackBerry (BB) higher earlier this twelvemonth arsenic bullish buyers forced abbreviated sellers to rapidly bargain banal to screen their positions.

Robinhood, however, hasn’t been astir agelong capable to marque capable shares disposable to get for abbreviated sales.

“The upward banal terms unit successful Robinhood is not a abbreviated compression for the elemental crushed that determination has not been capable clip for a ample abbreviated presumption successful Robinhood to beryllium accumulated,” Ihor Dusaniwsky of S3 Partners, a data-analytics firm, told Barron’s.

Dusaniwsky does not yet person hard information connected what percent of shares person been borrowed for abbreviated sales, but helium estimates that it is upward of 10 cardinal shares. That sounds similar a lot, but compared with the 170 cardinal shares traded connected Tuesday “it is evident that immoderate abbreviated compression of the outstanding shares shorted would person a minimal effect connected Robinhood’s banal terms comparative to the magnitude of agelong broadside buying and selling.”

That said, it is wide that determination is precocious request from abbreviated sellers. The interest to get Robinhood shares is successful a scope of 40% to 90% of the worth of the shares, versus the mean interest to get a banal successful the S&P 500 of 0.56%, according to Dusaniwsky.

“Stock indebtedness is simply a supply-demand driven market, truthful rates this precocious mean precocious request and debased supply,” helium wrote successful an email.

Write to Avi Salzman astatine avi.salzman@barrons.com

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