Original title: the investigation of the US Securities Regulatory Commission is not over! Beware of retail investors who hype Robinhood. Source: British Financial Information Investing

This article comes from Yingwei Financial Information Investing

The commission-free, easy-to-use Robinhood has revolutionized the US stock brokerage industry. The familiar script has reappeared, with retail investors focusing on Robinhood.

Robinhood's share price jumped 50% on Wednesday, with a large number of retail investors following in the footsteps of Cathie Wood, which Cathie Wood bought after Robinhood went public last week.

On its debut on July 28, Robinhood had a market capitalization of just $29.1 billion. After Cathie Wood entered the market, its market capitalization reached as high as $65 billion. On Thursday, Robinhood closed at $50.97, down 19.5% from Wednesday.

Robinhood has left 25 per cent of the IPO offering to users on its platform to attract retail investors. Robinhood is the most traded stock on Fidelity.

With such a large trading volume, Robinhood ranks among highly volatile retail investors, as well as game stations.AMC cinema chain has become "brothers".

But there is only one simple question for long-term investors: is it appropriate to buy Robinhood now?

Atlantic Equities, which gave Robinhood a target price of $65, believes Robinhood's growth path is robust and can attract growth investors.

In a report released last week, the agency said:

"We believe that thanks to the success of referrals and products in the target group, user growth will maintain a very strong momentum."

In addition to the potential for user growth, there is also a lot of room for growth in the average revenue generated by a single user of Robinhood, Atlantic Equities wrote:

"although Robinhood's revenue has achieved a three-year compound growth rate of 169%, we see the potential for the company to further expand its product portfolio."

Cathie Wood, chief executive of ARK Invest, who is highly sought after on Reddit's WallStreetBets forum, said his fund Fintech Innovation ETF bought 89600 shares of Robinhood on Tuesday, and has bought 3.15 million shares of Robinhood since IPO.

Regulatory conflict

Despite these positive factors, there are obvious risks in Robinhood's income model, which long-term investors should be wary of.

Robinhood could clash with regulators over controversial revenue models.According to Robinhood, 81 per cent of its revenue in the first quarter came from sending users' stock, options and cryptocurrency orders to high-frequency trading companies, a practice known as order stream payments.

Gary Gensler, chairman of the US Securities Regulatory Commission, said in June that it was reviewing the order stream payment model. Some speculate that this model may be banned.

The brokerage industry believes that the order stream payment model allows retail investors to invest in stocks for free, but Gary Gensler questioned that in an interview in June.

He said:

"I think this is a misunderstanding. This is not free stock speculation. Although there is no commission, it is not necessarily free. "

He points out that the data obtained by brokers are valuable.

These uncertainties and the large share of retail investors may be why Robinhood's early investors sold a lot of the company's shares.

More than a dozen of Robinhood's existing shareholders have applied to sell no more than 97.9 million shares after the company's IPO, according to documents disclosed Thursday.

These shareholders include Robinhood's largest venture capital institutions, such as New Enterprise Associates, Ribbit Capital, Thrive Capital and Andreessen Horowitz.

Conclusion

Robinhood has become a member of retail holdings, which are often divorced from fundamentals, so we recommend that long-term investors avoid these stocks.

Although Robinhood will still generate strong revenue if the SEC review does not damage its business model, it is best to avoid it as long as the uncertainty is not eliminated.