The individual investors who powered GameStop Corps
rapid emergence have a new goal: Rocket RKT -18.73%
Cos., The parent company of Quicken Loans.
Shares of the mortgage lender were up 71% to $ 41.60 on Tuesday and nearly 377 million shares were traded, more than a tenfold increase from the previous day. Trading was halted several times on Tuesday afternoon due to volatility. Shares of Rocket were down nearly 16% on Wednesday.
Like GameStop, Rocket is badly shorted. According to S3 Partners, a data analytics company, as of Monday, 46% of stocks available for trading were shorted. Retail investors on WallStreetBets, the Reddit community that spawned GameStop’s rise, have been encouraging each other in recent days to buy the stock and share proof of their own massive profits.
Rocket has other advantages. The company recently announced that it would pay a one-time dividend of $ 1.11 per share later this month, citing its “very profitable and low-capital business model.”
Rising mortgage rates are also boosting mortgage lenders’ earning potential just as the crucial spring season for home sales kicks off. The average interest rate on the 30-year fixed-rate mortgage recently rose to 2.97%, the highest level since August.
According to research firm Inside Mortgage Finance, Detroit-based Rocket is the largest mortgage lender in the US. Its $ 323 billion in home loans in 2020 far exceeded the $ 221 billion that came from its closest competitor, Wells Fargo & Co. Its large size and strong brand — with two Super Bowl commercials — set it apart from other non-bank lenders.
Before Rocket’s explosion, stocks of non-bank mortgage lenders had done little to impress investors in recent months. Some of the lenders who have listed their shares in the public market in recent months have cut their offerings significantly. Some never made it to the market due to lukewarm investor interest.
Rocket’s stock had not strayed too far from their $ 18 listing price in the seven months since the company’s initial public offering. The stock rose to over $ 31 in the first month, but quickly bounced back to close to $ 20.
The first sign of launch came late last week, when Rocket reported impressive fourth quarter results. Shares rose nearly 10% on Friday. News of a significant dividend triggered Rocket’s stock price first, KBW analyst Bose George said.
“The first step made sense, but the fundamentals haven’t driven it since then,” said Mr George. “They are other factors that are more difficult to estimate.”
Shortly before its public market debut last summer, Rocket announced an ambitious expansion target of cornering 25% of the mortgage market over the next decade. According to Inside Mortgage Finance, the market share is currently about a third of that.
“There may be spikes and dips in margin and interest rates for a short time … but as we get to the other side, you find that there are usually fewer competitors,” CEO Jay Farner said during the company’s earnings call. last week. “And so for those who remain, not only does the margin stabilize … but it also gives you … the opportunity to increase market share.”
Mr. Farner will speak at a Morgan Stanley conference on Wednesday morning.
Two other mortgage lenders saw large stock gains on Tuesday. UWM Holdings Corp.
and loanDepot Inc.,
20% and 13% respectively.
The GameStop frenzy put the spotlight on a growing group of investors seeking and sharing trading information on social media platforms such as YouTube and TikTok. Three investors explain how these online communities help them chase the market. Photo illustration: Adam Falk / The Wall Street Journal
Write to Orla McCaffrey at [email protected]
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