Why Shares of Robinhood Are Surging This Week

Since last Friday, shares of the popular online brokerage Robinhood (NASDAQ: HOOD) had surged 13%, as of 12:36 p.m. ET Thursday. Investors believe the company will soon join the S&P 500 (SNPINDEX: ^GSPC).

A big potential upcoming step

Bank of America analysts led by Craig Siegenthaler said in a report this week that Robinhood is a "prime candidate" to join the broader benchmark S&P 500 index, which includes 500 of the largest companies in the U.S. with an unadjusted market cap of at least $20.5 billion, as of January 2025. The rebalancing is expected to be announced after the market closes tomorrow. Inclusion into the S&P 500 tends to be bullish because funds that track the index will have to purchase Robinhood, likely leading to significant inflows.

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"The S&P 500 and Russell 1000 are the two major benchmarks for our large-cap long-only clients," the Bank of America analysts said in their note, according to Bloomberg. "When companies are added, we experience significantly higher interest from long-only portfolio managers, which are essentially now forced to cover them and make a call."

Robinhood pioneered commission-free trading, which is now common practice among almost all major brokerages, and expanded access to investing for smaller, retail investors. The platform has become the go-to trading post for retail traders. At the end of April, Robinhood had close to 26 million funded customers and $232 billion in platform assets.

Is the stock a buy?

In the first quarter of 2025, Robinhood grew earnings by 114%. I am also impressed by the company's ability to execute its product road map. Robinhood's Gold membership offers an impressive 3% cash back on its Gold card, the ability to earn competitive interest on deposit balances, and annual matches on individual retirement account contributions.

Robinhood has really become a compelling one-stop shop for many banking needs, all bundled together in a sleek and easy-to-use digital platform. Currently trading at 51 times forward earnings, the stock is undoubtedly expensive, so I'd start by dollar-cost averaging or buy on future dips.

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Bank of America is an advertising partner of Motley Fool Money. Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bank of America. The Motley Fool has a disclosure policy.