Rocket Companies Is a Simple Company With Needless Volatility

Rocket Companies (NYSE:RKT) stock has needless volatility.

The logo for Rocket Companies displayed on a smartphone screen (RKT).
Source: Lori Butcher / Shutterstock.com

It’s a simple company, a mortgage wholesaler. Its use of technology and big TV ad budget makes some people think there’s more to it than that. But the underlying business remains simple. They make loans, they sell loans.

Despite this, RKT stock is prone to wild price swings. It was briefly the subject of speculation in March, rising as high as $41 before falling. It continued bouncing down until October, when it seems to have bottomed at $15. Now it’s less than $18.

All the bouncing around has Rocket right about where it was when I last looked at it in September. The catalyst today remains what it was then, earnings that are due out on Nov. 4.

Analysts are expecting 42 cents per share of net income on revenue of $2.85 billion. This is enough for at least one bull to highlight the stock.

Rocket is strapped to the housing market, and the demand for mortgage loans. Both seem to be cooling down. Private equity competition has made housing unaffordable for millions. Rising interest rates mean there’s less competition for loans.

Rocket management doesn’t like its position and is trying to diversify. It has a sales force pushing solar panels. It has launched a used car marketplace. Rocket also has its own real estate search platform, called Rocket Homes, and sells its real estate appraisal technology to other mortgagers.

What’s Expected

Because RKT stock sells for barely 6x its earnings, there’s an assumption of volatility. This is either a great bargain or there’s something rotten inside it.

Our David Moadel smells a bargain. He also likes Rocket’s move into making loans on residential solar panels.

On the other hand, Louis Navellier smells something unpleasant. He sees growing competition in selling mortgages, thus thinner margins. He sees the real estate market slowing next year as interest rates move up.

Other InvestorPlace analysts are skeptical as well. Chris Markoch worries about the general economy, which should keep the stock from taking off. Stavros Georgiadis thinks Rocket has taken on too much debt, and that its price is not out of line with similar companies.

Tipranks is somewhere in the middle. It has eight analysts, seven of whom just say hold it. Their price target is just 9% above where it is now. Zacks believes that Rocket will beat earnings estimates. Recent estimates on earnings have been moving up, which is a good sign of strength.

The Bottom Line on RKT Stock

I’m taking the under. I shouldn’t be too far off either way, because again this isn’t an exciting business. RKT stock is within a few dollars of its one-year price target.

I’m taking the under because of start-up costs on the new businesses. Rocket is hiring real salesmen to sell the solar panels, which it calls its Cloud Force. Even if it works exclusively online, it’s going to bear some costs launching a used car marketplace.

Rocket’s moves tell me management is impatient with the mortgage market. They need something to goose earnings in 2022 and beyond.

But when you’re already originating billions in loans each year, it’s hard for a new business to move the needle. There are also start-up costs to consider. They’re not being considered by most analysts.

Either way, what’s most important is that this isn’t an exciting company. It’s a steady Eddie, ballast in a balanced portfolio. If you need that ballast you won’t go far wrong either way on RKT stock. It’s staying on the launchpad.

On the date of publication, Dana Blankenhorn held no positions in stocks mentioned in this story. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Dana Blankenhorn has been a financial and technology journalist since 1978. Just in time for Halloween he has a collection of COVID-19 stories at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.


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