Rocket Cos. is there a purchase under $ 20?


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Leading mortgage and financial services firm Rocket Companies (RKT) achieved record loan origination volumes in its most recent quarter, benefiting from a historically low interest rate environment. However, even though RKT stock is currently trading below $ 20, we believe there are several headwinds and bleak growth prospects that could cause its price to drop in the near term. Read on.

The holding company Rocket Companies, Inc. based in Detroit, Michigan (RKT) operates in real estate, mortgage lending and technology-driven e-commerce businesses in the United States. It offers Rocket Mortgage, a mortgage lender; Rocket Loans, an online direct lender loans”}” data-sheets-userformat=”{“2″:513,”3”:{“1″:0},”12″:0}”>direct lender loans company; Rocket Homes, a real estate search platform; and other related solutions. RKT’s share price has climbed 3.8% in the past five days, thanks to its record second quarter mortgage volume.

But RKT’s stock is down 9.6% year-to-date. Closing yesterday’s trading session at $ 18.29, the stock is currently trading 57.5% below its 52-week high of $ 43.

Although a low interest rate environment helped the company achieve a record volume of loan issuance in its final quarter, its gain on sale margin declined significantly. In the Direct-to-Consumer segment, RKT adjusted revenue decreased 44.4% year-on-year. Additionally, ongoing class actions against the company and increased competition in the housing market could make the stock a risky buy at this time.

Here is what we believe could influence RKT’s performance in the coming months:

Growing rivalry

Amid the current surge in house prices as demand exceeds supply and with ultra-low interest rates, the mounting volume has increased. However, this has led to aggressive competition in the mortgage industry. United Wholesale Mortgage has become the biggest threat to RKT’s market share. In March, the CEO of UWM said that the company no longer working with mortgage brokers who also did business with Quicken, which is owned by RKT. While RKT remains a dominant player in the mortgage market, it follows UWM in wholesale mortgages.

Prosecutions and ongoing investigations

This month, Levi & Korsinsky, LLP, The Gross Law Firm, Jakubowitz Law and several other law firms filed securities fraud class actions against RKT on behalf of its shareholders, over matters relating to claims allegedly false or potentially misleading made by the company. . Additionally, Labaton Sucharow, a shareholder advocacy firm, has started investigating the mortgage company for a potential fiduciary duty violation. These class actions and investigations could cause stock prices to drop in the short term.

Dark finances

For the second quarter, ended June 30, 2021, RKT’s net gain on loan sales decreased 50.7% from its value a year ago to $ 2.34 billion. dollars, while its net loan management loss was $ 71.4 million. It said adjusted net income of $ 920 million, down 67.7% from the previous year quarter. Also, the company Adjusted EBITDA fell 66.7% year-on-year to $ 1.28 billion. RKT’s sales margin gain was 2.8% for this quarter, compared to 5.2% for the period of the previous year.

RKT’s leveraged free cash flow over the last 12 months is negative at 15.9%. Additionally, the company’s ROA and ROE of 1.1% and 12.4%, respectively, are 16.4% and 1.3% lower than their industry averages. Its net profit margin of 2.3% over the last 12 months is 92.4% lower than the industry average of 29.7%.

Dark prospects for growth

Analysts expect RKT’s revenue to decline 28.6% in the current year and 18.7% next year. In addition, its revenue is expected to decline 39.7% year-on-year to $ 2.75 billion in the next quarter, ending September 30, 2021. The company’s EPS is expected to decline 64.5% in year on year to hit $ 0.43 next quarter. And Rue expects its EPS to decline at a rate of 30.3% per year over the next five years. Additionally, its EPS is expected to decline 48.7% in fiscal 2021 and 27.5% in fiscal 2022.

Unfavorable POWR ratings

RKT has an overall D rating, which translates to Selling in our POWR odds system. POWR scores are calculated by considering 118 separate factors, each factor being weighted to an optimal degree.

Our proprietary scoring system also rates each stock against eight distinct categories. RKT has a C-value rating. Its rolling 12-month price / pound ratio of 4.19x, which is 243% below the industry average of 1.22x, justifies the rating.

In terms of Growth Grade, RKT has an F, which is in line with the company’s insufficient growth prospects.

Additionally, it has a D rating for stability, which reflects that the stock is more volatile than its peers.

Click here to view additional POWR ratings for RKT (Quality, Feeling and Momentum).

RKT is ranked # 92 out of 104 stocks in the D-rated Financial Services (Business) group.

Final result

While RKT saw a substantial improvement in the volume of closed loans in its most recent quarter, it did not take full advantage of the heat in the housing market. In addition, the company’s gloomy financial situation and the current challenges of its business could hamper its growth prospects. So, we think it might be wise to avoid the stock now.

How does Rocket Companies (RKT) compare to its peers?

RKT has an overall POWR rating of D. So one might consider taking a look at its industry peers, Forrester Research, Inc. (FORR), Donnelley Financial Solutions, Inc. (DFIN) and Santander Consumer USA Holdings Inc. (SC), which each have an A rating (strong buy).

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RKT shares were trading at $ 17.80 a share on Tuesday morning, down $ 0.49 (-2.68%). Year-to-date, RKT is down -11.97%, compared to a 19.66% increase in the benchmark S&P 500 over the same period.

Imon is an investment analyst and journalist with a passion for financial research and writing. She started her career at Kantar IMRB, a leading market research and consumer advisory organization.

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