Rocket Companies (RKT) turned in a huge beat on the top line in its most recent quarter but there is still has a huge short position against the stock. The company also destroyed bottom-line expectations, but shorts remain. Management has demonstrated a willingness to aggressively return capital to shareholders, but shorts remain. Rocket's revenue stream pulls from four different sources, not simply mortgages, but shorts remain.
This is a case of valuation questions versus performance.
Right now, the company continues to perform. While interest rates remain low, this doesn't feel like low-hanging fruit for shorts. While the Fed continues to serve up easy monetary policy, this doesn't appear to be an easy short. As the company pays out excess earnings in the form of dividends or implements share buybacks, this doesn't appear to be a logical short. Those special dividends will draw in growth and income investors to pair with growth investors gawking at the eye-popping top and bottom-line growth of Rocket Companies.
The "Companies" part of the name is important. While mortgages are a sweet spot and the basis behind the company, there are logical arms and legs that can sprout from that body, which is precisely how it has grown.
RKT includes Rocket Homes, Rocket Auto, and Amrock as well. Amrock, a title services and property valuation business, is the most logical extension for a mortgage company. Streamlining the purchase or refinance process is key to maintaining strong margins even in a rising interest rate environment. It also should decrease customer costs and increase their satisfaction with a smoother, faster process.
Rocket Auto brings in the buying, selling, and financing of autos. It creates a fantastic cross-selling opportunity. Rocket Homes ties in the buying and selling of homes, which we've seen move more online and into self-service. All of these work harmoniously together creating a strong 91% net client retention rate for Rocket Companies. That's on the level of many subscription-based revenue models.
We've already seen WallStreetBets/Reddit chase this stock. That has created a misleading chart. The $27 to $41 spike is more mirage than resistance or target; however, if the stock can close above $27, I do believe we could see a push back into the $30+ range in short order.
The Moving Average Convergence Divergence (MACD) indicator may cross over bullish Tuesday, offering a bullish divergence ahead of price. The same can be said for the Full Stochastics indicator while the parabolic stop-and-reverse (PSAR) indicator is already there now.
Overall, I believe this makes a great buy and hold candidate for the next 12 to 18 months for investors. For traders, a close over $27 should create an upside jailbreak with a quick 10%+ pop. For income investors, note that management appears focused on capital return, so that's an attractive draw.
There's a bit something for everyone here, which makes this a name to own, in my view.