However, the biggest difference is that Rocket’s marketing and general & administrative expenses are considerably higher than UWMC because it has a direct-to-consumer business that requires a lot more leg work and cost but generates far more revenue and profits. For example, UWMC’s salaries are 17.9% of net revenue while Rocket’s salaries are 18.4%. In terms of pre-tax income, UWMC has a pre-tax margin of 73.4% compared to 62.0% for Rocket.Ī big part of the difference in margins has to do with total expenses. Do the same for UWMC, and you get 2.6x sales based on Q1 2021 net revenue of $1.19 billion. If you annualize Rocket’s Q1 2021 net revenue of $4.58 billion, it trades at 1.9x sales. So, the question you have to ask yourself is whether Rocket’s deserving of this premium. Thus, UWMC is currently valued at a discount of 34% to Rocket on a price-to-cash basis. Well, consider that United Wholesale Mortgage’s parent sells for 7.9x cash based on a market cap of $12.5 billion divided by $1.59 billion in cash at the end of March. How is it possible that the company added $886.5 million in cash to its balance sheet in Q1 2021 and trades at less than 12x cash, yet investors are actually contemplating its stock at less than $10? The third option is to get out while RKT is still in the teens. As long as you buy under $18, I think your downside shouldn’t be more than a couple of dollars.Īs Chahine suggests, any good news will quickly push RKT into the $20s. In late May, I suggested that RKT stock was a good bet in the teens for speculative investors. So that’s the risk you take at this point. However, should a price war heat up, those fundamentals won’t appear to be nearly as strong in 12-18 months. I would argue that he’s right to a point. Long-term, a trade at current prices should deliver outsized gains because it’s got a strong balance sheet and great fundamentals. InvestorPlace contributor Nicolas Chahine - ranked the number four blogger at TipRanks - pointed out at the beginning of July that every time Rocket’s stock’s fallen below $20, buyers have jumped in to push it back up. It seems more like a beginner’s hill at the local ski resort. In Rocket’s situation, I don’t think you can characterize its performance as a falling knife. I learned from the March 2020 correction that it pays to buy on the dip. That would explain why a majority of analysts covering RKT rate it a hold at the moment - 12 out of 16 with a median target price of $19.25 - but if you do own the stock, the fact the target price points to a 10% upside suggests you might want to hang tight until more information is in. But, unfortunately, there appears to be little in the way of catalysts to move Rocket’s stock higher at this point. To a certain extent, I would tend to agree. As a result, investors should stay away until the mortgage marketplace is easier to evaluate. He concludes his late June article by suggesting Rocket’s future direction is too murky. Markoch reminds readers, with an assist from Ian Bezek, that Rocket competitor UWM Holdings (NYSE: UWMC) would see the greater benefit because it focuses on new mortgage applications. Investors are trying to figure out who will benefit more from a mortgage market that leans toward new home financing rather than refinancing existing homes. It’s down 12% year-to-date (YTD) through July 16. But, as my InvestorPlace colleague, Chris Markoch, said recently, RKT stock should be booming given the housing market is relatively robust here in July 2021.īut it’s not. The issue at hand is that it’s hard to know what’s currently happening in the mortgage origination space.
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