Most investors do not like increased periods of volatility. But this is not the case for millennials and novice investors, as evidenced by the online investment app Robinhood.
Last year, Robinhood picked up about 3 million new users. This is noteworthy as the average age of its users is only 31.. Robinhood’s commission-free operations, a fractional investment and the granting of free shares to new members have all worked effectively to attract young investors.
While it’s fantastic to see young people putting their money into the world’s biggest wealth creator, many Robinhood users do not understand the importance of long-term investment. As a result, the rankings of the platform (the 100 most-owned stocks) are largely filled with penny stocks and less than desirable momentum.
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Most shares in Robinhood are a solid company
Perhaps the one exception to this rule is the largest stock of Robinhood. Most stocks on the platform were mostly a profitable and / or innovative company offering significant growth or value in the long run.
For example, with the exception of a few days, tech kingpin appeal (NASDAQ: AAPL) is consistently the most consistent Robinhood stock for months. Apple is one of the most famous brands in the world and launched its first 5G compatible iPhone just three months ago. Although CEO Tim Cook oversees high-margin services, iPhone is still Apple’s biggest revenue-generator. In short, it is a cash flow machine that is constantly at the forefront of innovation.
We also saw a short while in January Tesla Motors (NASDAQ: TSLA) climbs to number one spot on Robinhood’s leaderboard. Although I’m not a big fan of Tesla’s valuation, it’s clearly done right to prove me so wrong. The electric vehicle giant (EV) delivered nearly 500,000 vehicles last year, and at the Battery Day event in September, the ways in which its batteries will retain the benefits of capacity, range and power over their peers are outlined. For now, Tesla’s first lead in US EVs seems secure.
Even Ford (NYSE: F) once held itself as the shareholder in Robinhood. While it was a feature of the app that donated free shares of Ford to new members, it is a company that offers long-term growth at a reasonable price. Ford has a recognizable brand with more than a century of history, and it will spend $ 11 billion between 2018 and 2022 to conduct research and design a range of EVs. Given the existing infrastructure and profit history, Robinhood investors are wise to invest in Ford.
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Here is the stock that Apple dethroned
But there is a brand new company that has set aside Ford, Tesla and eventually Apple to become the new share on the platform from February 4th: AMC Entertainment (NYSE: AMC).
No, I’m not kidding. The movie chain AMC Entertainment is owned by more Robinhood users than any other stock exchange listed on a major US stock exchange.
If the name rings, it’s probably because AMC is the attendee GameStop in the Reddit-based retail investor rally we’ve seen over the past few weeks. Both GameStop and AMC have a high level of short-term interest (ie investors who want to see their share prices fall). Knowing that investing in the WallStreetBets chat room on Reddit, small investors banded together to buy shares and call options outside the money for both companies. In the case of AMC, it raised the company’s shares by a cool 525% higher in January. As noted earlier, Robinhood users like momentum stocks.
Interest in AMC was also partially fueled by the company raising $ 917 million in funding at the end of January. It raised $ 506 million between mid-December and end-January by issuing ordinary shares, and secured another $ 411 million through debt capital. With the coronavirus disease 2019 (COVID-19) pandemic shutting down movie theaters or significantly reducing foot traffic, AMC will be able to make it through the winter.
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AMC is an absolute hurt
Unfortunately, the new no. 1 share on Robinhood an absolute point of view that simply should not be in investor portfolios.
Let us not forget that AMC was previously the point of view of day traders and retail investors, but was virtually on the verge of bankruptcy. The only way to avoid bankruptcy was to add debt and issue a load of diluted shares. It is noteworthy that AMC’s recent rise in the share price is considering the company making another offer to raise additional capital.
AMC’s core business model also looks seriously flawed in two respects. First, it is unclear when the COVID-19 pandemic will subside. The recent rally in AMC shares indicates that the current vaccination campaign will run smoothly and that life will be back to normal by the middle of the year. However, surveys indicate otherwise, with a recent poll by the Kaiser Family Foundation showing that almost half of all respondents are in wait-and-see mode or simply do not want the vaccine.
The other big problem is that the monopoly of cinemas of new movies might come to an abrupt end. In December, AT&T (NYSE: T) the subsidiary WarnerMedia has announced that it will release all of its new films on HBO Max in 2021, the same day they are going to hit theaters. AT&T saw a significant increase in HBO Max subscribers before this announcement, and I would not be shocked if the momentum continues during December and the new year. The point is that consumers prefer the comfort of their couch over the atmosphere of a movie theater.
AMC does not have the largest stake in Robinhood, and I can only hope that millennial and novice investors will familiarize themselves with the company before it is too late.