Rocket Companies (RKT) — Undervalued or Not?

Rocket Companies logged a 1.3% change during today's afternoon session, and is now trading at a price of $7.43 per share. The S&P 500 index moved 2.4% and the Nasdaq posted a 3.0% change. RKT's trading volume is 1,047,722 compared to the stock's average volume of 3,201,291.

Rocket Companies shares moved -48.2% over the last 52 weeks, with a high of $14.53 and a low of $5.97. During this time, the stock lagged the S&P 500 index by -29.6%. As of January 2022, the company's 50-day average price is $7.4868. Rocket Companies, Inc., a fintech holding company, provides mortgage lending, title and settlement services, and other financial technology services in the United States and Canada. The small-cap Financial Services company has 26,000 full time employees and is based in Detroit, MI. Rocket Companies has returned a 0% dividend yield over the last 12 months.

The Company's Debt Levels Are Worrying:

2019-12-31 2020-12-31 2021-12-31
Revenue (MM) $4,983 $15,549 $12,684
Revenue Growth n/a 212.04% -18.43%
Net Margins 17.94% 1.27% 2.43%
Net Margins Growth n/a -92.92% 91.34%
Earnings Per Share $0.27 $1.76 $2.32
EPS Growth n/a 551.85% 31.82%
Free Cash Flow (MM) -$7,008 -$1,784 $7,441
FCF Growth n/a 74.55% 517.17%
Capital Expenditures (MM) -$49 -$106 -$303
LT Debt to Equity 1.48 14.37 13.85

Rocket Companies Is Reasonably Valued:

Compared to the Financial Services sector's average of 13.34, Rocket Companies has a trailing twelve month price to earnings (P/E) ratio of 4.1 and, based on its EPS guidance of 0.03, an expected P/E ratio of 247.8.

The firm's price to earnings growth (PEG) is 3.03, which indicates that it is overvalued in terms of its expected rate of earnings growth.

Rocket Companies is undervalued in terms of its assets because its price to book (P/B) ratio is 1.6 compared to its sector average of 1.95. The company's shares are currently trading -39.3% below their Graham number, implying there is a margin of safety for the stock. The Graham number is calculated according to the formula:

√(22.5 * 3-year average EPS * book value per share) = √(22.5 * 1.45 * 4.601) = $12.25

Most of the Market Indicators on Rocket Companies Are Negative:

14 analysts are following Rocket Companies and have set target prices ranging from $4.5 to $9 per share. On average, they have given the company a rating of hold. At the current price of $7.43, RKT is trading 4.42% away from its average analyst target price of $7.12 per share, implying an analyst consensus of little upside potential for the stock.

The company has an unusually large proportion of its shares sold short since 29.9% of the company's shares are tied to short positions. Institutions own 65.1% of Rocket Companies's shares, while the insider ownership rate stands at 5.03%. The biggest shareholder is the Vanguard Group, Inc. with a 8% stake in the company worth approximately $74,906,546.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.