We’re nearing the end of a pretty nasty downtrend trend for Rocket Companies (RKT), but it may be time to consider buying in at these levels for a long position. I’d love feedback on my thesis below.
It’s no secret that the stock has struggled in the face of raising interest rates to combat inflation. It’s been looming over the stock since early 2021 (aside from when it meme’d). Now that we have a little more clarity from the FED on what we’re dealing with and how we’re gonna handle it, the next few years may actually be favorable for Rocket even if on the surface, they’ll be making less money than they did during the pandemic.
I believe the competition will be way more affected by higher interest rates than RKT. This is a reality that all mortgage companies have to deal with. But RKT has deep pockets along with more diversification into other revenue streams to wait out slower periods. I believe there will be more consolidation in the mortgage industry in the next few years (we’re already seeking it with moves like Better.com, look that up if you haven’t seen that mess) and it’ll only help RKT obtain more market share.
The execs at RKT have also been very savvy with acquisitions to grow their platform outside the traditional mortgage route. I predicted that they’d start acquiring companies about 3 months ago (see post history) and they bought Truebill (a 1.275 billion all cash deal) a few weeks after my post. They’re funneling tons of cash into advertising this app. I see adds EVERYWHERE for it (youtube ads, public transit, etc) and it’s a brilliant way to get users in the door/into the ecosystem for more service offerings. The user base growth is a story no one seems to be talking about. It will be key in the long run as they strive to obtain the most market share. I expect another major acquisition to be done by the end of 2022 at the latest. Jay Farner (CEO) stated that they’d be very aggressive this year to acquire companies as they become more appealing to buy with everything coming down from pandemic highs.
And the cherry on top, Jay also stated that he plans to buy $36 million of his own stock throughout the year of 2022. The stock price of 10-11 seems to be an established floor with the worst news already known and behind us. The upside heavily outweighs any risks that I see but I’d love to hear any constructive negative theories that you may have (especially at these prices).
Position, 3600ish shares (dividend $ recently reinvested back into the stock, rounding) @ a 17 average. I’ll be buying calls soon as well. Preparing to buy call leaps by the end of the week. I expect this to be a 20 stock by 2023.
Leave a Reply