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Rocket Companies: Why The Market Is Undervaluing This Stock

Apr. 11, 2021 11:52 AM ETRocket Companies, Inc. (RKT)19 Comments
Revolution Capital profile picture
Revolution Capital


  • Rocket Companies trades at an incredibly cheap valuation multiple for a high growth software company operating in the mortgage, real estate and personal loans space.
  • Q4 2020 earnings showed incredible earnings growth of 162% year on year, powered by their ability to harness technology capabilities to digitalize complex transactions.
  • The company is targeting strong future growth, with expansion expected in automotive, e-commerce and insurance business segments.

Investment Thesis

With the exception of a GameStop (GME) style short squeeze in March 2021, Rocket Companies (NYSE:RKT) has traded fairly flat since its August 2020 IPO. Despite incredible sales growth, high profitability and many options for future growth, investors have not yet fallen in love with the stock. Our thesis is that Rocket’s high revenue growth and low valuation multiple will not last forever and there is an asymmetric upside potential for the stock.

The bull case for Rocket Companies

Investors don’t have to look far for reasons to be bullish on Rocket, their recent Q4 2020 earnings release highlighted revenue growth of 162% when comparing Q4 2020 vs Q4 2019, full year revenue growth was even more impressive at 187% adjusted revenue growth - $16.93 billion 2020 revenues vs $5.9 billion in 2019.

Unlike many of its technology focused and high growth peers, Rocket isn’t still working out how to turn their high growth into profit for shareholders. The same earnings presentation linked above, displays earnings before interest, taxes, depreciation and amortization of $11.1 billion up 472% from $1.9 billion in 2019. The company also returned cash to shareholders through a $1.11 per share special dividend in March 2021.

In terms of future growth prospects for the company, they too look strong with their recent upwards market share trend in the mortgage origination market – Rocket recently overtook Wells Fargo to become the largest mortgage originator in the US – plus their ability to pivot and utilize their technology platforms in varying industries. Their recent 10-K displays positive developments in their Auto car sales (31% increase year on year), Amrock Insurance (110% increase year on year) and Rocket homes brands (assisted in $1.6 billion real estate transactions in Q4 2020).

(Source: Rocket Q4 2020 Earnings

This article was written by

Revolution Capital profile picture
Finance professional, with a passion for growth stock research; heavily focussed on future technological innovation and trends that will impact the world as we know it - Electric Vehicles, Clean Energy, SaaS, Cloud, E-Commerce and Payments.My investing philosophy is one of buying exciting, early stage growth companies that bring a new or differentiated product to market that will impact one of the key global markets highlighted above. I normally aim to own them for the long term.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

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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Comments (19)

OverTheHorizon profile picture
Ready for launch:
still a baggy with a average of 29...will take some years to see this level again i think. Maybe i should just short it. The squezze should be a exit for me but i had hope for more...
What is going on @ Alpha Two pieces, one for and one against RKT? seekingalpha.com/...

should I just be blocking any news from Alpha?
@kni8_2k You should be happy with different authors bringing in a broader picture. Instead of complaining rather do your own DD.
OverTheHorizon profile picture
Excellent. You had me at:
"Rocket recently overtook Wells Fargo to become the largest mortgage originator in the US"
I have been selling covered calls since October of last year. RKT is a cash printing press.
@harley96 I've dabbled with selling puts. Do you target strikes far otm?
Every week, I am selling month out puts that have around a 30 delta and if I get assigned, I am then selling the same as covered calls. This stock is a little cash printing machine.
Nice support on the chart; will add Mon am
Long RKT and PFSI
- significant insider holding
- buyback plans
- cheap valuation metrics resulting from experienced management knowing how to take advantage of market conditions
Thanks for the read!
How is this even allowed to be published. The author hasn't a clue of what this company actually does, the market they operate in, what historical earnings cycles look like, or the fact that RKT is actually the most EXPENSIVE name in its sector.

The comparison to payment processing companies is embarrassing.

Other than a well executed short squeeze around the special dividend, the reason this stock can't rally is because everyone in the mortgage space realizes that normalized earnings are a fraction of 2020/2021 earnings, and as the refi boom winds down, RKT could easily have multiple years of sub $1 EPS.

There is zero fundamental case for this stock to go significantly higher, other than nitwits trying to squeeze it who don't know anything about this sector. If RKT is so cheap, would love to hear why the author thinks UWMC and COOP trade at half the forward multiple.

The stock is a buy in the low teens. Not here.
Kasper777 profile picture
@newmork Well, RKT’s goal is to gain 25% market share of nation-wide mortgage sector (not to mention Canada which they’ve just invested in). If RKT will manage to get there, a 2$+ is not a fiction.
matttrakker profile picture
@newmork uwmc and coop don’t have the vision or aspiration to do anything but mortgages. They plan and expect to be only mortgage companies. Rkt plans more, cars, insurance, its size, and tons of profits will drive the ecosystem think apple.
OverTheHorizon profile picture
@newmork Agree. Nitwit posters who don't know anything about this sector can be annoying. . . .
Long RKT.
Holding and adding here
At around the $20 mark, what downside truly is there? In such a red-hot market I love Rocket for its outstanding execution, strong growth in market share and admirable background. I don't currently own shares but will likely invest soon.
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