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Should i buy rocket companies stock12/22/2023 ![]() ![]() I conservatively estimate 5% annual revenue growth, which is both lower than pre-COVID growth levels and means that I don't expect an instantaneous reversion from record drops in revenue. ValuationĪccording to my discounted cash flow analysis, at its base case, the fair value of Rocket Companies is $8.93, with the stock undervalued by 4% at its current price of $8.56.Īlthough Rocket does not necessarily have a high debt/equity, the high beta of the stock implies a greater equity risk premium, thus commanding a discount rate of 10% in my five-year, non-perpetual model. Rocket maintains no distinct value proposition from peers, undergirding my 'hold' valuation although I believe Rocket companies have superior operational capabilities, I am unsure if this will rectify chronically poor financials. Similarly to peer firms, Rocket posted negative ROE and returns over the past five years, emphasizing the macro headwinds mortgage lenders are enduring. As I've previously discussed, this emphasizes Rocket and its revenue and net income weakness to rising interest rates. And the loanDepot ( LDI) operates similarly to Rocket Companies, though on a smaller scale.ĭemonstrated above, Rocket has experienced the poorest quarterly and second-poorest yearly price action. ![]() On the other hand, the Essent Group ( ESNT) is a housing finance company with insurance products across the mortgage lifecycle, with its stock price reflecting mortgage price dynamics. ![]() For instance, the United Wholesale Mortgage ( UWMC), as its name suggests, is a mortgage wholesaler, underwriting mortgages and loans for independent brokers. As such, without any direct digital mortgage, wholesale-funded competitors, it makes the most sense to compare Rocket with mortgage providers of similar size or capability. ![]() The mortgage industry is a highly intensive one, with competition from independent brokers, private providers, and larger banks. While the downtrend in the financial services industry was largely a symptom of successive bank crises- thus why Rocket was able to outperform other financial companies, with less exposure to third parties- Rocket is still highly sensitive to interest rate movements. Rocket Companies (Dark Blue) vs Industry & Market (TradingView) In the TTM period, Rocket Companies- down 1.50%- has experienced growth between the financial services industry ( XLF)- down 5.87%- and the general market- up 2.60%. Due to the confluent upside involved, with strong operational capabilities, and the strong potential risks, with high volatility and sensitivity to extraneous variables, I rate RKT stock a 'hold'. However, rising interest rates continue to pose an existential risk both to Rocket's funding capabilities and demand for products. Rocket Companies Flywheel (Rocket Companies May'23 Investor Presentation) Asides from general downsized AUM effects due to increased interest rates, lower mortgage valuations, and reduced mortgage demand, Rocket has successfully grown in terms of brand awareness and retail mortgage market share. To enable long-run growth, Rocket seeks to pair its platform offerings with a virtuous cycle of efficient operations, providing unique client experiences through Rocket's integrated real estate platform, utilizing digital products, and increasing client base size and scalability through constant accessibility. Macro stressors extend into the company's Q1'23 financials, reporting a 39.17% YoY revenue decline to $888.85mn and a -1.35bn free cash flow, largely driven by negative FCF in operating activities and declines in investing cash flows. These activities have supported 2022 revenues of $3.85bn- down 61.51% since 2021, due to negative interest convexity and Rocket's wholesale funding methodology- and free cash flow of $10.73bn in the same period. Rocket Companies May'23 Investor Presentation Additionally, via brands like Amrock and One Reverse Mortgage, Rocket offers title and property insurance and reverse mortgage services. Rocket Companies ( NYSE: RKT) is a Detroit, Michigan-based mortgage loan provider, with its highly integrated operations spanning home financing, home sale and search, and other personal finance and lending provisions. ![]()
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