During today's afternoon trading session, Rocket took the market by storm, rocketing to $19.32 per share despite it now being above its mean target price of $16.92. This 9.9% movement implies there may not be much more room for upwards movement for the stock -- if its analysts are to be believed. They are giving the Diversified Financial stock on average rating of hold, with target prices ranging from 12.0 to 25.0 dollars per share.
The market sentiment on Rocket seems pessimistic because the proportion of shorted shares in its float is quite high at 37.3%. Each short position represents an investor's expectation and hope that the stock's price will reverse course and start declining.
Short selling involves borrowing shares and then selling them at current market prices. In the successful version of the strategy, the shares are purchased at a lower price at some time in the future. The investor then returns the shares to the lender, and keeps the profit made on the sell/buy transaction.
One way to get an idea of the market sentiment on a stock is to check its rate of institutional ownership. In the case of Rocket, institutional investors own 88.6% of the shares. This would indicate a positive sentiment towards the stock among institutions. What does this really tell us?
Institutional investors such as hedge funds, investment firms, and wealth managers devote significant resources to identifying good investments. If they have decided to invest in RKT, it probably means they believe it is a solid investment choice. But it could also mean they are buying up shares in an effort to acquire the company or get seats on the board of directors. Also bear in mind that institutions are fallible (just maybe not quite as fallible as the average retail investor), so they may simply be wrong when they think they've found a good stock.
Overall, there is mixed market sentiment on Rocket because its an analyst belief that shares are overpriced, a hold rating, an unusually large proportion of its shares sold short, and a significant number of institutional investors. Warren Buffett famously said that in the short term, markets are voting mechanisms, but in the long term, they are weighing mechanisms. This means that long term investors should be aware of a stock's fundamentals before committing.
Buffett was one of the fist investors to focus on free cash flow as a yardstick for a company's health. Here are RKT's recent cash flows:
| Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | Free Cash Flow ($ k) | YoY Growth (%) |
|---|---|---|---|---|
| 2024 | -2,629,239 | 67,509 | -2,696,748 | -5494.25 |
| 2023 | 110,329 | 60,336 | 49,993 | -99.53 |
| 2022 | 10,823,495 | 93,124 | 10,730,371 | 40.71 |
| 2021 | 7,743,928 | 118,291 | 7,625,637 | 527.51 |
| 2020 | -1,677,370 | 106,346 | -1,783,716 | -63.9 |
| 2019 | -1,076,854 | 11,462 | -1,088,316 |
