Rocket Companies (RKT)

Rocket Companies (RKT)

Summary:  OVERPRICED

Score: 8/20
MOS: 1%
Share Price:  $20
Sticker Price:  $20

Is Rocket Companies stock a good buy?

Rocket Companies is a holding company founded in 1985 and headquartered in Detroit, MI.

Their brands include…

  • Rocket Mortgage is a US-based mortgage lender. This business has closed more than $1T in home loans since inception. They become the first digital mortgage experience in 2015.
  • Amrock is a provider of title insurance, property valuations, and settlement services.
  • Nexsys has two main products – Nexsys Clear Sign and Nexsys Clear HOI. Nexsys Clear Sign is a digital signature platform and Nexsys Clear HOI allows lenders to instantly download evidence of Homeowners Insurance.
  • Lendesk streamlines the Canadian mortgage experience.
  • Edison Financial is an Ontario-based digital mortgage firm.

Although Rocket Mortgage is a popular mortgage lender, they definitely have a narrow moat.

Based on this article from bankrate.com, here are the top 10 largest mortgage lenders of 2020 based on loan origination volume.

  1. Quicken Loans – 1.1B
  2. United Shore Financial – 560M
  3. Freedom Mortgage – 389M
  4. Wells Fargo – 320M
  5. LoanDepot.com – 294M
  6. JPMorgan Chase – 229M
  7. Caliber Home Loans – 228M
  8. Fairway Independence – 228M
  9. Bank of America – 184M
  10. US Bank – 180M

Here is what the news has to say.

This article from The Motley Fool states that shares dropped by 21% due to the declining gross profits.

This article from Yahoo Finance states that revenue increased but the outlook looks grim due to the expectations of interest rates increasing in the near future. Aside from Yahoo’s analysis, Zacks is classifying this stock as a strong sell.

Here is a look at the financials.

Revenue (Found on the Income Statement)
2017: $3.4B
2018: $3.4B
2019: $4.2B
2020: $15.5B
Revenues have increased substantially in 2020.

Net Income (Found on the Income Statement)
2017: $770M
2018: $612M
2019: $893M
2020: $197M
Net income has declined substantially. This is alarming, especially after the revenues increased to $15.5B. This shows significant margin erotion.

EPS (Found on the Income Statement)
2017: 7.68
2018: 6.11
2019: .28
2020: 1.97
EPS has increased since 2019 but it’s still much lower than 2018 and 2017.

Free Cash Flow (Found on the Cash Flow Statement)
2017: -$310M
2018: $1.3B
2019: -$7B
2020: -$1.7B
Free Cash Flow is highly volatile and now in the negative. Not a good sign.

Total Assets (Found on the Balance Sheet)
2017: Not reported
2018: $11B
2019: $20B
2020: $37B
Total Assets have increased.

Total Liabilities (Found on the Balance Sheet)
2017: Not reported
2018: $8.7B
2019: $16.5B
2020: $29.6B
Total Liabilities have significantly increased.

Total Debt (Found on the Balance Sheet)
2017: Not reported
2018: $8.1B
2019: $15.4B
2020: $27.1B
Total Debt has increased consistently. This is a red flag.

Total Equity (Found on the Balance Sheet)
2017: Not reported
2018: $2.7B
2019: $3.4B
2020: $490M
Total Equity has declined. This is not a good sign.

With a Score of 8/20 and a MOS of 1%, this stock is too risky. With the meaning, the mortgage industry is hot at the moment but the issue is the moat. Rocket Companies and its subsidiaries have a lot of competition.

The Summary, Score, and MOS of this stock may have changed since the posting of this review. Please login to Tykr to see up-to-date information.