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Although Jim Cramer is urging Robinhood investors to trim some of their positions, he also advises that they still retain a sizable stake in the company.
CNBC’s Jim Cramer has asked Robinhood (NASDAQ: HOOD) shareholders to reduce how much of the trading app’s shares they hold since HOOD has become a meme stock. Cramer suggests that shareholders should take their profits and get out of the position before losses begin.
Speaking about the recent HOOD spike, the Mad Money host likened Robinhood to AMC (NYSE: AMC) and GameStop (NYSE: GME). The movie theater chain and video-game retailer both spiked earlier this year, with the rise caused by sentiments originating from Reddit. Cramer said:
“Meme stocks are easy money on the way up. But as we’ve seen with GameStop and AMC of late, you have to take profits while you still have them by selling gradually on the way up.”
Cramer believes that the upward momentum of meme stocks does not last too long, and it’s best to make profits while their prices are still high. The former hedge fund manager suggests that any investor who gets too carried away by the recent surge in value and refuses to quickly capitalize in a practical way may get burned down the line. According to him:
“It doesn’t matter how much you love [Robinhood], discipline always trumps conviction.”
Robinhood shares advanced 50.4% to close at $70.39 after initially hitting an $85 high on Wednesday. This was on the back of a 24.2% gain the brokerage firm made on Tuesday and now roughly represents an 80% gain in two days. This recent Robinhood uptick is enough to see the company dubbed a meme stock.
Cramer Hedges Opinion on Robinhood Stock
Although Jim Cramer is urging Robinhood investors to trim some of their positions, he also advises that they still retain a sizable stake in the company. In his opinion, this is to allow for additional growth as he believes the brokerage firm has a solid future ahead of it.
Cramer had advised investors to buy Robinhood shares on Monday. At the time, he believed Robinhood CEO and co-founder Vlad Tenev would transform it into a diversified fintech company, one capable of competing with other established players such as Square and PayPal.
The Recent Robinhood IPO
Robinhood went public on July 29th on the NASDAQ with an initial public offering (IPO) of $38 a share. At the offering, Robinhood offered some of the shares to retail investors. This was unusual because Wall Street usually does this with institutional investors and other persons with a high net worth.
Robinhood experienced a rocky start to its public offering as share prices dropped 8% to $34.82. As a result of this, the trading app managed to raise close to $2 billion after selling 52.4 million shares which was lower than its initial forecast.
Currently, Robinhood has a market capitalization of $32 billion. In its relatively short time of being a public company, the company’s stock has traded as low as $33.25.
The term ‘meme stock’ refers to under-the-radar stocks listed in the US market. These stocks are usually without fundamentals and suddenly catch the fancy of individual investors or day traders. A social media frenzy is also one of the major reasons a stock becomes a meme stock.