RKT

Rocket Companies

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-$9.93 -60.78%
Sept Idea Comp - Rocket Companies $RKT
Interest rates for mortgages are above 6%. Mortgage demand falls to a new 22-year low, according to Forbes. Home sales dropped 19% in July.
Why would anyone be buying shares of mortgage companies when this is the current environment of the real estate market?
Interestingly, it's the insiders of $RKT that are buying the dip. And in this memo, I will explain the possible reasons why insiders are bullish on Rocket and why this company is a great investment.
First, Rocket's business structure has been starting to look more like a bank than an internet startup.
Over the past few years, Rocket has been filling its balance sheets with mortgages that it originates. Before, it would sell its mortgages to Fannie Mae or Freddie Mac for securitization. Now, it's starting to hold onto those loans and reaping the cash flow from it.
And with mortgage payments surging throughout 2022, Rocket is seeing its inflation skyrocket along with it.

Insiders know that with surging mortgage payments, $RKT will have a lower impact on its revenues. Loan origination volume is down but at least the loans that they originate and hold will provide them with cash flow during these hard times.
Another thing is that Rocket is leading the consolidation of the home mortgage industry. The home mortgage industry is highly fragmented with many mom-and-pop shops. As Rocket gains more market share, the company will see higher profits overall and have more power over its industry.

In this slide, we can see that Rocket Mortgage has less than 10% of the mortgage market. When compared to other companies like $SCHW $AMZN $INTU and $BKNG, all who lead the consolidation of their own industries, Rocket could reap a similar level of fortune as those other companies if it can gain a similar percentage of market share as those industry leaders.

And based on the growth of Rocket's market share in the mortgage market, I am confident that the company can reach its targeted threshold of above 20% market share.
When a company gains market share, if they're not efficient, then it can lose its gains to a competitor that's more efficient. According to Rocket, they're way more efficient than the average mortgage company. As their loan volumes have grown over the past several years, they've shown success in scaling their business. This is proven by the number of loans per production team member per month metric (below).

Outside of mortgages, Rocket has a personal finance app that they obtained through its acquisition of Truebill. The best part about this business is that its annual recurring revenue (ARR) is over $100 million. Like the mortgages it holds, Rocket's premium membership plan for its personal finance app is also bringing more recurring revenue to the business. Investors love recurring revenue business whether times are good or bad.

Rocket has other business lines too, like providing auto and solar loans. There are many cross-selling opportunities for the company. While most of these non-mortgage businesses are small, over time, they will grow into something bigger.

But for now, let's appreciate that Rocket owns the entire home buying process. More money comes to them and little to no money goes to third parties when people buy a home through Rocket.

Conclusion
In sum, I believe that the:
  • large and consistent cluster insider buying
  • gains in market share
  • high efficiency
  • management's efforts to diversify revenues outside of mortgage origination
  • loans on Rocket's books
Rocket will create immense value for investors. While times are tough for the real estate market, Rocket has a strong balance sheet (current ratio of 5.03) that can help the company weather the tough times.
It's possible that Rocket will capitalize on these tough times to acquire its competitors at a lower price and acquire more market share from there. A contrarian move like that could be another reason why insiders continue to buy every dip in this stock.

Or maybe insiders simply like buying a great business at a great price.
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Why are insiders buying the dip on $RKT despite slowing demand for mortgages?
Rocket Mortgage is a fintech mortgage originator that became America’s largest mortgage originator, all within a few years.

Outside of the fees they generate from every mortgage they originate, Rocket Mortgage makes money by servicing mortgages, meaning that they generate fee for the collection of payments and maintaining relationships with borrowers. Finally, Rocket Mortgage also makes money from offering title insurance, marketing, and from having a real estate brokerage.

Usually, the company sends over 90% of its loans to Fannie Mae and Freddie Mac so that those mortgages can be securitized. But as of the past few years, Rocket has been holding more of the loans that they originate onto their books, giving them passive income.

With mortgage demand dwindling and home sales plunging, insiders of Rocket continue to buy the dip.

When considering that mortgage payments have surged, insiders are optimistic that the company will see a surge in earnings from the interest that come with holding onto mortgages.

That's why insiders are buying the dip on $RKT
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As long as home buyers continue to pay for properties in cash, the spike in interest rates wouldn't have a big effect on property prices.

$RKT $UWMC and banks will be able to make more money from their lending activities.

In my view, I see changes in regulation to be what will derail the property markets. If policymakers start imposing YIMBY policies, like the removal of zoning laws and other forms of deregulation, then we could see a building boom and more supply entering the market quicker.
Alberto Wallis's avatar
$22.7m follower assets
Upcoming Earnings Calendar (Feb 21th - 25th)
Hey guys! Here's the upcoming earnings calendar! Several very interesting reports coming up. Here's what I'll be looking forward to.

  • $MELI - How much did inflation impact their logistics margins?
  • $SQ - Cash App Users and Revenue Growth
  • $COIN - I think they will deliver a monster quarter. Crypto volatility should incentivize trading, driving commissions revenue above forecast.

If you'd like an easier way to track earnings dates, you can automatically sync your portfolio's earning dates to your personal calendar with just a couple of clicks here.

TUE:


WED:


THU:


FRI:
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ParrotStock's avatar
$265.7m follower assets
I'm trying to do a better job of trimming on the way up...

Closed half my option swings in $MGNI & $RKT on todays pop for +20% in both (on the earlier/more expensive cost basis)

I don't have hard rules on %gain targets on my trades, I usually have soft targets and try to let the market dictate decisions.

That leads to making more "gut" trades than I probably should.

You guy's that trade... How do you set your targets? Any advice for the community? 🙏👇

🦜
Very tough aspect of portfolio management and I'm not sure there really is a perfect answer. O'Neil was always a 20%+ and take profits person. Weinstein was a let it run until it forms a stage 3 roll to stage 4. There's also the "sell on day 3 spike" crowd. And probably folks all over the map. Depends on 'duration' style, too. Trimming less important for LT buy/hold "Fool" crowd than a swing/position trader and definitely, day trade crowd. For me, I usually trim big spike moves on core holdings or if catalyst passed, sell the move on rentals. I'll often sell some on a gap up (many are being rewarded for sticking w/ earnings gap plays, though). I'll also trim if weight gets too heavy (sleep at night factor). My gut is to trust your gut, but automating is very appealing. What are you 'thinking' in terms of rules you'd consider?
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Alberto Wallis's avatar
$22.7m follower assets
Upcoming Earnings Calendar! (Nov 1-5)
Hey guys! Here's next week's earnings calendar! Several very interesting companies set to report earnings. Here's the one's I'm most excited about and why:

  • $APPS: any sign of iOS ad dollars shifting to android (Digital Turbine's revenues are mostly from android).
  • $Z: an update on the real estate market and iBuying
  • $LYFT and $UBER: is mobility in the US back to pre-pandemic levels?
  • $COIN metrics on the NFT market.
  • $PENN and $DKNG update on the mobile sports betting market.
  • $ATVI number of Call of Duty Warzone players. The last reported number was 100MM.
  • $CRSR: comments on the supply chain issues they're experiencing.
  • $MELI: update on the Brazilian e-commerce market. Relevant for $SE's expansion.
Comment below which earnings report you are looking forward to the most!
Friendly reminder: you can automatically sync your portfolio's earning dates to your personal calendar with just a couple of clicks here.

MONDAY

TUESDAY

WEDNESDAY


THURSDAY

FRIDAY
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ParrotStock's avatar
$265.7m follower assets
Market finally looks like it wants to catch some bullish momentum.

I'm looking at Energy $OKE $RRC and Financials $RKT going into fall/winter.

Also looking for a reversal in some of my small cap names $EGLX $ATY etc.

What are you bullish on going into the 4th Q?
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