You might be surprised to learn Rocket Companies (NYSE:RKT) is the nation’s largest mortgage lender. As the parent company of Quicken Loans and Rocket Mortgage, Rocket Companies has a huge presence in the mortgage and financial services markets. Yet, RKT stock can’t seem to get off the ground.
To be frank, I think Rocket Companies deserves more respect from the investing community. Yet, some folks pigeonhole RKT stock as nothing more than a meme stock. Granted, Rocket Companies made headlines as the target of a Reddit-driven short squeeze earlier this year, but there’s far more to the company than that.
Let’s go over a few reasons to consider an investment in Rocket Companies now.
A Closer Look at RKT Stock
Rocket Companies has been around since 1985. However, it did not go public until last year.
On Aug. 5, 2020, Rocket Companies priced its initial public offering (IPO) at $18 per share. The next day, RKT stock debuted and the price rose as much as 26%, peaking at $22.76 per share.
The initial run-up was followed by a sell-off and then a pop to the early September high at $34.42. Unable to hold this level, RKT stock declined and languished in the low $20s for nearly six months.
In early March, RKT stock was swept up in the meme-stock craze. Rocket Companies was featured in some popular posts on Reddit’s WallStreetBets chat room. A massive short squeeze ensued with shares rocketing as much as 85% higher in one day to $43.
As they say, though, easy come, easy go. Shares plunged and hit a low below $17 in May. I’m sure some unlucky price chasers learned a painful-yet-valuable lesson from the experience.
A Terrific Value
I also believe RKT stock is extremely undervalued at current levels around $17 a share. And there aren’t too many attractive value stocks in today’s expensive market.
Rocket Companies has a trailing 12-month price-to-earnings ratio of 6.2. The S&P 500 has a P/E ratio of around 35.
The company is in an excellent fiscal position and is highly profitable, as evidenced by its second-quarter results and outlook. Below are some of the highlights from the report, which was released in August:
- $83.8 billion in closed loan origination volume – a record for the company and up nearly 16% year over year
- Net revenues of $2.7 billion, net income of $1 billion and adjusted EBITDA of $1.3 billion
- Total liquidity of $7.8 billion, including $2 billion in cash on hand
Additionally, the company said the number of real estate agents who had signed up for its Rocket Pro Insight by the end of Q2 was around 50,000. That number was more than three times higher than the start of the year.
Looking ahead to the third quarter, management said it expects closed loan volume of $82 billion to $87 billion.
With solid fundamentals and a low valuation multiple, I see RKT stock as a rare bargain.
Significant Growth Opportunities
Rocket Companies CEO and Vice Chairman Jay Farner emphasized that the strong quarterly results were driven by profits from multiple business segments, including the company’s mortgage, real estate, auto and personal finance brands. Farner also noted that Rocket Companies’ newer businesses, Rocket Homes, Rocket Auto and the company’s solar program, “leverage our existing platform and represent significant growth opportunities.”
One of the most promising growth avenues for the company is its Rocket Auto business line. The company just introduced a potentially game-changing car-buying website, RocketAuto.com.
Rocket Auto was growing at a fast clip prior to the website’s launch. During the second quarter, Rocket Auto facilitated the sale of 15,600 auto units, representing a year-over-year increase of 143%. I expect the introduction of RocketAuto.com will help the company sustain its winning streak. Management is forecasting Rocket Auto will more than double its car sales in 2021 as the company expands its presence into the online automotive market.
“With Rocket Auto, we are growing our car sales platform so those who know us and trust us have a place to purchase their next car within the Rocket ecosystem – using the technology and best-in-class client service they are used to,” Farner said.
The Bottom Line for RKT Stock
To me, there appears to be a disconnect between the current share price and the company’s true value. Rocket Companies’ most recent earnings report points to a firm capital position, while the company has numerous avenues for growth.
What’s more, RKT stock is trading at a ridiculously low valuation multiple. There are only so many bargains in the market right now – and this one might not last much longer.
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.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.
