![]() The market is at an all-time high, and the mortgage industry is at an all-time high. The stock may also be subject to headline risk if interest rates start to spike, which many investors see as a real possibility. It may take weeks or months for the volatility that r/WallStreetBets triggered in Rocket’s shares to fully die down and for RKT stock to settle back to a stable level. Rocket’s business is booming and the company is growing, while AMC and GameStop are hemorrhaging cash. It also got the shares unfairly lumped in with so-called r/WallStreetBets “meme” stocks like GameStop (NYSE: GME) and AMC Entertainment (NYSE: AMC) in the media. The pumping from WallStreetBets drove RKT stock up from around $19 to as high as $41.10 and then back down to under $26 in a matter of about two weeks. Rocket also unfortunately captured the attention of Reddit’s r/WallStreetBets community. ![]() However, I don’t think it’s generally a good idea to invest in a cyclical company right at the potential peak of a cycle. ![]() I like the company, and I like its business. I agree with much of Kupferberg’s take on RKT stock. But Kupferberg says Rocket could gain market share during the downturn, potentially positioning it to be an even bigger winner during the next upswing.īank of America has a “buy” rating and a $27 price target on RKT stock. If interest rates start rising sooner or more steeply than anticipated, that downturn could be a sharp one. In other words, those who invested in RKT stock should brace themselves for the beginning of a cyclical downturn in the mortgage market. “We believe this backdrop creates an opportunity for RKT to gain market share and its low cost ‘assembly of mortgages’ business model is better suited to protect margin than many peers,” he says. ![]() “Expectations for mortgage originator stocks have weakened recently due to increase in interest rates as investors are concerned about mortgage volumes and margins in a rising rate environment,” Kupferberg says.īut there is a silver lining for the owners of RKT stock. However, he is calling for full-year 2021 EPS of $2.24, down 45.5% from 2020. Bank of America analyst Jason Kupferberg is bullish on RKT stock. In February, Rocket’s Q2 guidance came in above analysts’ average outlook. But the reason the market is skeptical of Rocket is because it will soon face impossible year-over-year comparisons starting in the second quarter, since the Fed cut interest rates to 0% exactly one year ago. The stock trades at just 9.5 times forward earnings and 0.19 times trailing sales. Analysts’ TakeĪ quick glance at Rocket’s valuation metrics makes it seem like a screaming buy. It sold its shares to the public right when its business was likely peaking. Rocket may never again put up growth numbers rivaling 2020’s numbers. The company’s management decided to go public at what will likely end up being the peak of the mortgage cycle. They no longer had to worry about commute times, and they were no longer tethered to specific regions of the country.Īs a result, mortgage companies like Rocket experienced record growth in 2020. Many people’s jobs permanently shifted to remote work. In addition to historically low interest rates, Americans moved out of major cities and into the suburbs in droves.Ĭities known for their high costs of living, like New York and Los Angeles, were slammed by the pandemic. Mortgage rates plummeted, and a housing boom was triggered. When the pandemic hit, the Federal Reserve cut interest rates to 0%. There’s a good reason for what happened to Rocket’s business in 2020. If those growth numbers make you a bit skeptical, you’ve got sound investing sense. Rocket nearly increased its net income ten times in a single year. Rocket also reported $9.39 billion of net income in fiscal 2020, up 948%. In February, Rocket reported fiscal 2020 revenue of $15.73 billion, up 208% from 2019. But I definitely believe it should go on your list of stocks to potentially buy on the next market dip. I believe it’s still too early to be buying Rocket at this point. I’ve been recommending that investors avoid most 2020 IPO stocks like the plague. RKT stock is already up over 30% from its $18 IPO price back in August. Unlike other high-growth stocks, it also trades at a reasonable valuation. Not only is Rocket an extremely profitable company, but it reported record profits last year.
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