Robinhood Markets (NASDAQ: HOOD), the online brokerage that popularized commission-free stock and crypto trades, went public at $38 per share on July 29, 2021. Its shares opened at its IPO price, closed at $34.82 on the first day, and eventually soared to an all-time high of $85 on Aug. 4.

Robinhood's stock trades at about $8 today. Therefore, a $10,000 investment in its IPO would have blossomed to more than $22,300 last August -- before shrinking to just over $2,000. Let's review this volatile fintech stock's rise, fall, and possible future to see if it's still worth buying.

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A controversial business model

Robinhood was embroiled in several controversies prior to its IPO. During the Reddit-fueled "meme-stock" rally in early 2021, Robinhood temporarily restricted trades of several popular meme stocks, including GameStop and AMC Entertainment, when the high trading volumes boosted its capital requirements to unsustainable levels.

That decision angered many of its customers and caused regulators to closely scrutinize Robinhood's payment-for-order flow (PFOF) business model. In that arrangement, Robinhood sells its customers' trades to high-frequency trading (HFT) firms, which then execute them to profit from the bid-ask spread. This business model enables Robinhood to provide "free" trades.

Proponents of the PFOF model claim it's a win-win situation since HFT firms can secure lower prices for retail investors (relative to public exchanges) by allowing them to piggyback off their bulk orders. The critics claim this business model prevents investors from ever getting the best price for a security.

Robinhood was also repeatedly criticized for "gamifying" its platform with video game-like effects to attract inexperienced investors. The suicide of a Robinhood user in 2020, as well as steep losses for investors who blindly chased the meme-stock rally last year highlighted those risks.

Why did investors fall in love with Robinhood?

Even amid those controversies, Robinhood's stock initially popped after its IPO for three reasons. First, the company allocated up to 35% of its IPO shares to its own customers to "democratize" its public offering.

However, Robinhood also likely hoped that selling shares to its own investors would turn it into a meme stock like GameStop and AMC -- since it quietly pegged its founder's bonuses to certain post-IPO price targets. Robinhood became a meme stock last August but fell short of the $120-$300 range that would have triggered even bigger payouts for its two co-founders.

Second, Robinhood was still growing like a weed. Its revenue surged 245% to $959 million in 2020 as its investors traded much more frequently throughout the pandemic. More investors also chased meme stocks and cryptocurrencies, and many of them poured their stimulus checks into the market. The company's revenue increased another 89% to $1.82 billion in 2021.

Lastly, Robinhood seemed destined to disrupt traditional brokerages. Between 2017 and 2021, its monthly active users (MAUs) surged from 1.8 million to 17.3 million -- which represented a stunning compound annual growth rate (CAGR) of 76%.

Why did investors fall out of love with Robinhood?

Unfortunately, Robinhood lost its luster for three other reasons. First, rising interest rates crushed the market's pricier and unprofitable stocks.

At the time of its IPO, Robinhood was valued at nearly $30 billion, or 17 times the sales it would eventually generate in 2021. Its price-to-sales ratio more than doubled the following month. It squeezed out a slim profit of $7 million in 2020 but racked up a staggering loss of $3.69 billion in 2021 as it paid big stock bonuses to its founders and top executives. That frothy valuation and red ink made it an easy target for bears.

Second, Robinhood's growth stalled out as retail investors lost their appetites for meme stocks, aggressive options trades, and cryptocurrencies. As a result, its MAUs have declined sequentially for three consecutive quarters -- dropping to 15.9 million in the first quarter of 2022 -- and analysts expect its revenue to fall 19% to $1.48 billion with a net loss of $1.29 billion for the full year.

Lastly, the U.S. Securities and Exchange Commission (SEC) plans to either rein in or completely ban PFOF trades -- which might enable investors to get better prices while reducing the market volatility generated by HFT firms. An outright ban on PFOF trades could cripple Robinhood's entire business.

Is Robinhood a potential turnaround play?

Robinhood's stock now looks a lot cheaper at five times this year's sales. However, it can't be considered a screaming bargain when other better-run tech companies are now trading at similar price-to-sales ratios.

This market is already tough for most growth stocks, but it's downright unforgiving for broken growth stocks with flawed business models. Robinhood could remain in the latter category for the foreseeable future.

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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.