Over the past several months, retail investor participation in the stock market has increased significantly. The growing number of discount brokers and access to multiple investment tools offered by various platforms contributed substantially to this trend. Also, as people seek to capitalize on pandemic-induced volatility in the stock market, the number of active investors has increased considerably.

The growing adoption of digital platforms for trading stocks and other securities, coupled with increasing technology spending by online brokerage firms to attract millennial investors, should continue to fuel the industry's growth.

However, popular online broker stocks CoinBase Global Inc. (COIN) and Robinhood Markets Inc. (HOOD) have failed to capitalize on the industry tailwinds due to their poor fundamentals. Thus, we think these stocks should be avoided now.

CoinBase Global Inc. (COIN)

San Francisco-based COIN offers financial infrastructure and technology for the crypto economy. Its services include a primary financial account for the crypto economy, and a platform for investing, storing, spending, earning, and using crypto assets. It offers its services to retail customers, institutions, and ecosystem partners.

But today, Levi & Korsinsky, LLP, announced that a class-action lawsuit has been filed against COIN on behalf of its shareholders. Also,  the Schall Law Firm and Jakubowitz Law filed a class-action lawsuit against the company for alleged violations of federal securities laws. These lawsuits could negatively impact COIN’s stock price in the near term.

COIN’s revenue came in at $2.23 billion in the second quarter, ended June 30, 2021. Its transaction expenses increased significantly year-over-year to $335.43 million, while its general and administrative expenses increased 377.4% from the prior-year quarter to $248.20 million. Its net income came in at $1.61 billion over this period.

The company's EPS is expected to decline by 40.3% next year. Also, analysts expect COIN’s revenue to decline 9.9% year-over-year to $5.67 billion in fiscal 2022. COIN's stock has declined 8.1% over the past three months.

COIN’s POWR ratings are consistent with this bleak outlook. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

COIN is rated an F for Stability, and a D for Value. In addition,  within the D-rated Software Application industry, it is ranked #61 of 143 stocks.

To see additional POWR Ratings for Growth, Sentiment, Quality, and Momentum for COIN, click here.

Click here to check out our Software Industry Report for 2021

Robinhood Markets Inc. (HOOD)

HOOD is a financial services platform that allows users to invest in equities, exchange-traded funds, options, gold, and cryptocurrencies. In addition, the Menlo Park, Calif., company provides a variety of learning and education solutions, which include Snacks, a digest of business news items; Learn, a collection of approximately 650 articles, including guidelines, feature tutorials, and a financial dictionary; and Newsfeeds, which provide access to free premium news from multiple sites.

This month, HOOD announced that it would acquire Say Technologies, an online retail investor relations platform, through a $140 million cash deal. Although this acquisition could  drive the company’s business growth, it could also require a significant cash outlay in the near term.

HOOD reported an $83.03 million net loss in the first quarter, ended March 31, 2021. Its loss per share amounted to $0.11. The company’s total expenses came in at $421.63 million over this period. HOOD’s EPS is expected to remain negative in the current year.

HOOD’s poor prospects are also apparent in its POWR Ratings. The stock has an overall F rating, which equates to Strong Sell in our proprietary rating system.

It also has an F grade for Value and Growth, and a D for Stability and Sentiment. In addition, HOOD is ranked #139 of 143 stocks in the Software Application industry.

Click here to see the additional POWR Ratings for HOOD. (Momentum and Quality).

Click here to check out our Software Industry Report for 2021

COIN shares were trading at $258.42 per share on Thursday morning, down $19.98 (-7.18%). Year-to-date, COIN has declined -21.28%, versus a 19.51% rise in the benchmark S&P 500 index during the same period.

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.

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