The individual investors who drove GameStop corps
The meteoric rise has a new goal: Rocket RKT -17.60%
Cos., The parent company of Quicken Loans.
The mortgage lender’s shares rose 71% to $ 41.60 on Tuesday and nearly 377 million shares traded, more than ten times the previous day. Trading was suspended several times on Tuesday afternoon due to the volatility. Rocket stocks fell nearly 16% early on the day of trading.
Like GameStop, Rocket is severely shorted. According to S3 Partners, a data analytics firm, 46% of stocks available for trading were trimmed on Monday. Retail investors at WallStreetBets, the Reddit community that spawned the rise of GameStop, have been encouraging each other over the past few days to buy the stock and exchange evidence of their own massive gains.
Rocket has other advantages. The company recently announced it would pay a one-time dividend of $ 1.11 per share later this month, citing its “highly profitable, capital-efficient business model.”
Rising mortgage rates also increase the earnings potential for mortgage lenders once the all-important season for home sales begins in spring. The average 30-year fixed-rate mortgage rate recently rose to 2.97%, its highest level since August.
Rocket, based in Detroit, is the largest mortgage lender in the United States, according to research firm Inside Mortgage Finance. The $ 323 billion home loan in 2020 significantly outperformed closest competitor Wells Fargo & Co.’s $ 221 billion. The big and strong brand – it ran two Super Bowl commercials – sets it apart from other non-bank lenders.
Prior to the Rocket blaze, stocks of non-bank mortgage lenders had done little to impress investors in recent months. Some of the lenders who have listed their stocks in the public market in the past few months have downsized their offers significantly. Some never made it to the market because of tepid investor interest.
Rocket’s shares have not been too far off their listing price of $ 18 in the seven months since the company went public. The stock rose above $ 31 in the first month but quickly returned to nearly $ 20.
The first sign of a start was late last week when Rocket reported impressive fourth quarter results. Shares rose nearly 10% on Friday. News of a sizeable dividend prompted Rocket’s first share price rise, said KBW analyst Bose George.
“The first step made sense, but the basics haven’t pushed it since then,” said George. “There are other factors that are difficult to judge.”
Just before making its public debut last summer, Rocket announced an ambitious expansion target: to capture 25% of the mortgage market over the next decade. According to Inside Mortgage Finance, the market share is currently around a third.
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“There can be ups and downs in margins and interest rates for short periods of time … but when we get to the other side there are usually fewer competitors,” said CEO Jay Farner during the company’s earnings call last week. “And for the remaining ones, not only does the margin stabilize … it also gives you … the opportunity to gain market share.”
Mr Farner is due to speak at a Morgan Stanley conference Wednesday morning.
Two other mortgage lenders saw big stock gains on Tuesday. UWM Holdings Corp.
and LoanDepot Inc.,
increased by 20% and 13%, respectively.
The GameStop frenzy has put the spotlight on a growing group of investors seeking and sharing trade information on social media platforms like YouTube and TikTok. Three investors explain how these online communities help them keep track of the market. Photo illustration: Adam Falk / The Wall Street Journal
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