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Rocket Companies (RKT) is a Zacks #1 (Strong Buy) that consists of personal finance and consumer service brands. Some popular segments include Rocket Mortgage, Rocket Homes, Rocket Auto and Rocket Loans.
The company recently saw a solid Q4 earnings report that led to an uptick in the stock. Then the Wall Street Bets crew noticed the short interest, which cause a massive spike in the stock. Since the move higher, the stock has come down to previous levels, which is giving new investors a buying opportunity.
About the Company
Rocket is headquartered in Detroit, Michigan and was founded in 1985. The company has a team of 22,000 employees and its flagship company, Rocket Mortgage has consistently been named one of the “100 Best Companies to Work For” by Fortune magazine.
Rocket has a market cap of about $53 Billion and has Zacks Style Scores of “B” in Growth and “A” in Momentum. The Forward PE is 12 and the company typically offers no dividend.
Rocket reported earnings in late February, seeing a 37% EPS beat to the upside. The company reported Q4 EPS at $1.14 v the $0.83 expected, while revenue came in at $4.8B v $3.84B expected. Adjusted EBITDA came in at 330% y/y, while closed loan originations volume was up 111% y/y.
The company also guided net rate lock volume, closed loan volume, gain on sale margins substantially higher than last years numbers.
Moreover, the board declared a special dividend of $1.11 per share, payable to shareholders at the close of business on March 9th.
While the company has been around for a while, this was only the second earnings report as Rocket had its IPO back in August.
Analysts are very excited about Rocket's potential to capture the $3.5T mortgage market.
Over the last 7 days, earnings estimates have jumped higher. For the next quarter, we have seen estimates raised by 19%, from $0.53 to $0.63. For the current year, we have seen a 13% move higher in that same time frame.
Wall Street Bets and Short Interest
On March 2nd, a Wall Street Bets post started some buying in the stock that got out of hand. The stock was already moving higher, but the stigma of WSB coming in forced a surge on new buys to follow the trade, which forced a short squeeze.
The stock went from $25 to $43 that day, but quickly fell back to the $25 level on the recent market sell off. According to S3 partners, the short interest has actually grown to almost $1B as some shorts decided to double down.
Since the post-IPO sell off, the stock was stuck around the $20 level. The recent earnings report changed all that and we got the break out and short squeeze above $40. The stock fell all the way back to $23.50, which is just above the 21-day moving average. The 50-day, which is slightly above $21.50, has been the magnet all year for the stock.
If we do get another squeeze to the upside, watch out for the $35 level for resistance.
Rocket is in a good position to gain market share in the mortgage market. Recent turbulence in the treasury markets stopped the short squeeze in it tracks. But investors should watch for another attempt in the coming months, as the bulls aren’t done yet.
Longer-term, the company needs to continue the growth it saw over the last year to maintain a higher stock price. A special dividend brings investors in, but more importantly will be the company’s ability to shake up the traditional mortgage world.
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Rocket Companies, Inc. (RKT) : Free Stock Analysis Report
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