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Five Reasons This Rocket May Plummet


  • Rocket Companies Inc is aptly named, up 71% yesterday in a post earnings short squeeze.
  • Astute investors however will want to know not just the reason for the squeeze but also the reason 40% of the shares outstanding were short in the first place.
  • Also key to understand is the huge share overhang that is not currently counted as shares outstanding but can be converted into common and sold.
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Rocket Companies, Inc (NYSE:RKT) claims to be the largest mortgage lender in the US. In addition to providing mortgages through Rocket Mortgage, Rocket offers title insurance through Amrock, real estate services through Rocket Homes, auto loans and services through Rocket Auto, and other complementary services. The company seeks to combine these and third-party providers into one holistic platform and website to assist Americans with some of the largest transactions of their lives. You may have seen their ads while watching the Super Bowl.


Rocket reported stellar earnings after close Thursday, February 25 and as a result the Rocket Companies stock doubled in the following few trading days (closed at $41.60 yesterday with 357 million shares traded on the day). The Q4 earnings press release title gave a pretty strong hint why, “Rocket Companies Experiences Explosive Growth, Revenue Increases 144% year-over-year to $4.7 Billion in Fourth Quarter, Company Announces Special Dividend of $1.11 per Class A Share of Common Stock”. The conference call was equally enthusiastic with the CEO, Jay Farner, indicating that their Super Bowl ads,

“...ranked numbers one and two on USA Today's ad meter… [and] resulted in more than 3.3 billion consumer impressions…[that] Morgan Stanley and E*Trade have entered into a new agreement with Rocket Mortgage where our company will originate, close, and service conforming mortgages for their clients…[while] Rocket Labs will further accelerate our focus on expanding the business in ways that leverage our platform and serve our client base”.

In addition, they posted a rosy outlook for the first quarter of 2021, guiding toward:

  • Closed loan volume of between $98 billion and $103 billion compared to $51.7 billion in the first quarter of 2020, an increase of 90% to 99%.
  • Net rate lock volume of between $88 billion and $95 billion compared to $56.0 billion in the first
Data by YCharts

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This article was written by

Darren McCammon profile picture
Leader of Cash Flow Club
The Investment Community where your "Cash Flow is King"

Darren's started his career as the Assistant Manager of a 7-Eleven; eight years later he was responsible for 14 stores. This imparted a business sense he still finds quite useful today.

After getting his MBA, Darren then moved into doing strategic financial planning and analysis for Silicon Valley firms, eventually achieving Director's status. These strategy, modeling and analysis skills, as well as a lot of hours in boardrooms talking with executives, transferred well into stock investment. It allowed him to first retire in 2006 at the age of 40.

With Cash Flow Club, Darren is now seeking to help others by sharing the analysis and real-world strategies that allowed him to retire early. He remains a full-time investor whose primary source of income is dividend and interest from his investments. He eats what he kills.


- Bachelors in Economics

- Masters in Business Administration

- Certificate in Personal Financial Planning

Analyst’s Disclosure: I am/we are short RKT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Darren bought RKT puts. I would not suggest naked shorting of the name due to the unlimited loss potential of making that kind of investment during a short squeeze. RKT is a speculative stock. I do not know your goals, risk tolerance, or particular situation; therefore, I cannot recommend any specific investment to you. Please do your own additional due diligence.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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