Take Advantage of Rocket Companies’ Failure to Launch

Reddit traders sure know how to find interesting companies. Not long ago, InvestorPlace contributor Faizan Farooque put Rocket Companies (NYSE:RKT) at the top of his list of most talked about r/WallStreetBets picks, so clearly RKT stock has been garnering a lot of attention.

The logo for Rocket Companies displayed on a smartphone screen (RKT).

Source: Lori Butcher / Shutterstock.com

It might be surprising that Rocket Companies would be considered a favorite among Reddit traders. What could possibly be so interesting about a holding company that operates an online mortgage platform?

Yet RKT stock actually checks some of the boxes that high-risk traders look for. Thus, it’s possible that its price per share could unexpectedly surge in the near future.

On the other hand, Rocket Companies has much to offer even investors who are not into meme-stock trading. As we’ll see, the company’s financial data should entice  value-focused investors to take a long position in the name.

A Closer Look at RKT Stock

Let’s start off with some background information. Rocket Companies is the parent company of Quicken Loans and Rocket Mortgage.

The company had planned to issue shares priced between $20 and $22 during its IPO last year.

On Aug. 5, 2020, Rocket Companies priced its initial public offering (IPO) at $18 per share. However, the price didn’t stay there for very long.

The next day, RKT stock debuted on the public markets. On that first day, its price rose as much as 26%, peaking at $22.76 per share.

Meme-stock mania wasn’t in effect quite yet, though. As the enthusiasm for Rocket Companies waned, its share price dropped to the $20 level and stayed there for around six months.

Redditors might have been involved when RKT stock soared to $43 in March of 2021. That rally was short-lived, though, as the stock retreated right back to the $20 area.

A Prime Target

Yesterday the Rocket Companies’ share price closed at $19.35. Are some short squeezers from r/WallStreetBets setting up another moon shot right now?

That’s certainly a possibility worth considering. In terms of price-per-share, RKT stock isn’t too expensive, and that makes it an attractive target for amateur traders.

Recently I lurked on r/WallStreetBets and observed one contributor saying that he/she was “all in on” Rocket Companies.

This contributor actually presented a valid argument, observing that the “housing market is INSANE right now” and the “rising cost of lumber is forcing new homes to be more expensive,” meaning that mortgage companies are financing bigger loans.

In other words, real estate is a red-hot market – and this could capture the attention of social-media traders.

Still, that might not provide a solid basis for an informed investment. Are there are other reasons to buy RKT stock besides the possibility of another Reddit-fueled run-up?

A Category Leader, by the Numbers

Instead of hope, investors can use data to drive their investing decisions.

And there’s definitely encouraging data to support a purchase of RKT stock today.

During the first quarter of 2021, Rocket Companies posted net revenues of $4.6 billion, as its sales soared an astonishing 236% year-over-year.

Are you still not impressed? Then check this out: In Q1, the unique visitors to Rocket’s platform  jumped 72% YOY to more than 60 million.

Moreover, the customers keep on coming back to Rocket Companies as its net client retention rate was 91% during the 12 months that ended on March 31, 2021.

On top of all that, in Q1  Rocket Companies marked its sixth consecutive quarter of its closed loan volume more than doubling YOY.

With all of that in mind, Rocket’s CEO, Jay Farner, touted his business’s value proposition.

“The combination of our technology platform and Rocket Cloud Force of highly trained professionals, continues to deliver scalability and a client experience that is unmatched,” Farner asserted.

The Bottom Line

If you’d like to trade RKT stock based on its short-squeeze potential or its meme-stock popularity, that’s perfectly fine.

Yet there’s another possibility.

Informed investors can simply appreciate Rocket Companies’ position as a niche market leader – and take a long position in the name, if they’re ready to make a move.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Article printed from InvestorPlace Media, https://investorplace.com/2021/07/bold-investors-should-take-advantage-rkt-stocks-failure-to-launch/.

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