Rocket Companies (NYSE:RKT) stock price has come back down to earth after a successful initial public offering (IPO). Rocket stock nearly doubled in price after its Aug. 6 IPO, running up 91% to $34.42 after debuting at $18 a share.
However, a combination of profit taking and the recent market pullback have led RKT stock lower over the last week, bringing the price per share down to $23.39. While the move downward may be disheartening, investors should take the long view on Rocket Companies and trust that the stock price will move higher in time buoyed by solid fundamentals and profitability.
A Great Quarter
Within a month of its public debut, Rocket released second quarter results that showed the company is indeed profitable and had quarterly revenue of $5.04 billion, a fivefold increase over the same quarter of 2019. Additionally, Rocket reported that its net income grew to $2.85 billion in its latest quarter, up from $260 million in the second quarter of 2019. The company provided encouraging forward guidance for the third quarter, saying it expects closed loan volume to range from $82 billion to $85 billion, more than double the results of the third quarter of 2019. Rocket also forecast that its sales margins would be in a range of 4.05% to 4.30%, compared to 3.29% for the year earlier period.
Yet, despite the solid results, RKT stock fell 15% the next day. Investors seemed to be spooked by the fact that the company said its business will soften in the fourth quarter of this year. Due to the seasonality of the mortgage sector — a common factor that impacts the entire industry each winter. There also appears to be concerns that the U.S. housing market is going to cool off in the coming months as mortgage rates creep higher. Rocket Companies is well-positioned for long-term success with its popular Quicken Loans and Rocket Mortgages, that allow consumers to quickly and easily secure a mortgage online.
A Competitive Edge
Rocket’s proprietary tools and technology should enable it to stay ahead of traditional banks in the mortgage industry. The company has been working overtime to capitalize on historically low interest rates. The $72.3 billion in loans the company closed during the second quarter was a record in the company’s 35-year history. Rocket has said that the company is working on a platform that will enable it to close $40 billion in mortgages each month. That would be truly impressive. The company has also set a goal of achieving a 25% share of the U.S. mortgage market by 2030.
Additionally, Rocket Companies announced that its Quicken Loans subsidiaries are planning to offer $1.25 billion in senior notes due in 2029 and 2031. The company plans to use the proceeds from the debt offerings to pay down all of the $1.25 billion of 5.75% senior notes that are due in 2025. The notes are being offered to qualified institutional buyers. And, Rocket recently generated positive news headlines after it unveiled a six-point diversity and inclusion plan that commits it to hiring and developing diverse talent and advocating for equality. Rocket’s senior management also vowed to work on diversity issues with the police department in Detroit, Michigan where the company is headquartered.
Buy RKT Stock
It’s rare these days for a profitable company to IPO. Most companies that sell shares to the public are losing money and years away from turning a profit. Rocket’s most recent quarterly results confirm that the mortgage lender is not only profitable. While, growing at an accelerated rate and gaining market share in the process. It’s 35 year track record, innovative approach to online mortgage approvals, and use of cutting edge technologies to gain efficiencies make Rocket Companies a unique investing opportunity. Smart investors should view the recent pullback in RKT stock as a buying opportunity.
Analysts are just starting to initiate coverage on Rocket. In the last month, 12 Wall Street analysts have issued ratings and price targets for RKT stock. The average twelve-month price target is $28.75, indicating that the stock has a possible upside of 22.60% from its recent price per share. The high price target on the stock is $35.00 and the low price is $20.00. Rocket stock currently carries a “Hold” rating. However, if fundamentals still matter, then it should only be a matter of time before Rocket’s stock moves higher.
On the date of publication, Joel Baglole held shares of RKT stock.
