Robinhood Markets (NASDAQ:HOOD) stock started its life as a public company on July 29 at an initial price of $38. After hitting a high of $85 during its first few days of trading, HOOD stock has swiftly plunged back to the $50 territory. It currently hovers at $47, around 25% above its initial public offering price.

Investors already question whether this selloff was an early warning for HOOD shares. Robinhood will issues Q2 earnings on Aug. 18, its first such announcement as a public company. Therefore, today we look at what investors can expect from the widely-followed stock in future weeks.

What Robinhood’s Metrics Show

In preparation for the IPO, on July 1, Robinhood filed its S-1 Registration Statement with the Securities and Exchange Commission (SEC). As of March 2021, monthly active users (MAUs) on the app were 17 million and the fully funded accounts were 18 million. A year ago, the comparable metrics had been 8.6 million MAUs and 7.2 million fully funded accounts. Another metric management uses is Average Revenues Per User (ARPU). As of March 31, 2021, it came at $137, up from $82.90 a year ago.

Further numbers for the three months ended Dec. 31, 2020, show revenues of $959 million, an increase of 245% year-over-year (YOY) from $278 million. Management noted that part of that growth was due to cryptocurrency trading. Understandably, there’s plenty of room for growth in the crypto space. And the the company is barely touching a part of this booming market.

As a result of expanding operations, at the end of 2020, Robinhood recorded a net income level of $7 million, compared to a net loss of $107 million on Dec. 31, 2019. In other words, despite the top-line growth, Robinhood has only posted a negligible profit.

Q2 Earnings Are Important for HOOD Stock

When the company issues the second-quarter results, the Street will want to see if HOOD has the essential qualities to become a robust growth stock. So far, Robinhood has had a polarizing but also a large impact on the investing community.

Around 70% of the assets under custody are from users ages 18-40, a  group with most of their investing lives ahead of them. This new breed of retail investors welcome the commission-free and easy-access structure. Robinhood’s fractional-share sales also allow retail investors to buy only a part of a share at an affordable price.

In fact, Robinhood’s business model has paved the way for traditional online brokerages like Charles Schwab (NYSE:SCHW) to also offer commission-free investing.

The WallStreetBets community forum on Reddit has also been a critical growth engine for the rapid top-line growth. Discussions on the platform, especially regarding meme stocks, word-of-mouth marketing, and referral incentives have served as an informal marketing campaign on behalf of the company.

Yet, the Street also regards HOOD stock as heavily overvalued. With a market capitalization (cap) of over $39 billion, it currently trades around 21 times current sales. Put another way, Robinhood needs higher trading volumes as well as an increasing user base to justify the current valuation. Some might even argue HOOD stock itself could become a meme stock, too.

Looming Regulatory Risks 

Regular InvestorPlace.com readers would be well aware that Robinhood faces regulatory risks in its primary stock trading business. Earlier in the year, it found itself in the crosshairs of the SEC, following operational mishaps, including data breaches and trading outages during the height of the GameStop (NYSE:GME) short-squeeze frenzy.

Robinhood generates about 80% of its total revenue via payment for order flow (PFOF), a source of controversy on Wall Street. The broker is compensated for forwarding trade orders to market-maker intermediaries that may not always provide investors with the best possible price.

The company recently paid a $65 million fine, as the SEC decided it “made misleading statements and omissions in customer communications.” Moreover, PFOF is banned in Canada and the U.K. In other words, Robinhood would not be able to expand its current brokerage model overseas.

The Bottom Line on HOOD Stock

Robinhood has created a new breed of investors, leading to significant top-line growth in the process. However, potential investors should keep in mind that the market has high expectations from Robinhood, which might already be priced into the share price.

If the company fails in its expansion efforts or faces further regulatory setbacks, HOOD stock could easily come under further pressures. With stiff competition ahead, I believe Robinhood’s immediate risks currently overshadow its potential rewards. Therefore, interested investors might want to wait for a decline toward the $40-$42 level before hitting the “buy” button.

However, despite short-term choppiness, Robinhood is likely to be a winner in the long-run as it expands its user base for both equity and crypto trading. It could even find itself as a takeover candidate.