Initial public offerings typically benefit the owners and insiders. Investors who buy the stock after IPO initially pay the fully valued price. Unless market euphoria builds post-IPO and demand sharply exceeds supply, stocks such as Rocket Companies (RKT) will underperform. It’s easy to dismiss Rocket stock as “Rect” (calculated) based on its ticker. Conversely, strong metrics that signal rapid growth may also send RKT stock rocketing forward.
Rocket categorizes itself as a financial technology company. It provides personal finance and consumer services products that include Rocket Mortgage. The company is open 24/7.
Traders who specialize in trading IPO shares such as Uber (UBER), Spotify (SPOT), or Lyft (LYFT) would have done well by holding on. Is Rocket stock in the same category?
Strong quarterly results
Rocket placed 40% consecutive loan giveaways, giving the stock a premium bump of 8.9%, but not enough for the $ 24 opening price. To recap, the company posted a sequential sales margin of 5 , 19% compared to 3.25% in Q1. EBITDA of $ 3.8B is more than three times Q / Q and up nearly nine times Y / Y.
Q2 net revenue of $ 5 billion, net rate lock volume of $ 92 billion, and sharp net revenue growing to $ 3.5 billion, up from $ 97 million in Q1 suggest that Rocket has more momentum ahead. By embracing digitization, the company can advance the bricks and mortar settings. This Seeking Alpha user has summarized best:
Digitization is not going away, despite what happens to regulations like the economy, RKT will be a leader in lending because they have an enormous advantage. They did not just skate to the puck – they built the next arena. Except the next arena doesn’t have to be physical. “
Growing capacity
Rocket’s long-term investments pay off. Last year, the then 34-year-old mortgage lender hired 1,300 staff. And if the Fed cuts the interest rate to zero, home loans will only trend even higher. CEO Jay Farner said:
technology platform have allowed us to increase our capacity, take advantage of favorable market conditions and in turn position ourselves to capture additional market share. “
Trading below $ 20 a share and at a $ 38.1 billion market cap at the time of this writing, Rocket stock market can trade in a range for now. In the coming months, the expiration of the incident could add lockup sales. Unless insiders hold all of their shares, prudent investors may not hold a full position in Rekt stock.
Fair price
A few investors should be surprised that the majority of analysts rate Rocket stock as a “strong buy.” Investment houses do not benefit from issuing a “sell” rating because they will lose on trading costs if investors avoid the stock. The “hold” rates could later “buy” rating as Rocket posted strong results for the next few quarters.
Data courtesy of Stock Rover
Stock Rover also released six warnings. The stock has a quality score of 20/100, based on ROIC, net margin, and more. The value score is 35/100 (for example based on EV / EBITDA, P / E, and P / S). Euphoric ratings for a technology company are nothing new. On the DIY Value Investing Marketplace, Datadog (DDOG) and MongoDB (MDB) were “for sale” last summer at unfavorable P / E multiples. Those picks continued to reward investors as the work of the home trend accelerated.
Accelerating demand for Rocket through their app could lift its addressable profit from the market share. In that scenario, the valuations should not scare the investors.
Among the SA community, the average SA author rating is “neutral.”
Source: SA Premium
Investors should compare Rocket with other stocks that have been IPOs in the last 1-3 years. This may give an idea of Rocket’s volatility in the coming months.
Below, investors are still benefiting from the LYFT and UBER IPO if they bought at the right time.
Data provided by YCharts
To compare Rocket objectively, look at the failure of Dropbox (DBX) to also trade above its IPO price over the last few years:
Data provided by YCharts
Above, readers should look for post-IPO dudes to make a case in point for trading scenario for Rocket stock.
Take away
Rocket is a compelling full-term trade for investors who rely on high volatility levels. If markets accidentally correct incorrectly and investors lose confidence in the Fed, this stock is likely to run poorly. Markets have no valuation history to rely on. Because of that uncertainty, the supply would underperform. On a clear note, as markets continue to break to new highs, just as the Nasdaq (QQQ) did or is about to hit the S&P 500, Rocket shares will not retest recent lows.
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Announcement: I / we have no positions in named shares, and no plans to initiate positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I do not receive compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose supply is mentioned in this article.
