Summary

RKT is Priced Like a Legacy Mortgage Company when it should be priced like a fin tech
If mortgage market continues to boom, RKT is well positioned
Technicals: 50 and 10 day simple and exponential moving averages indicate a buy

Rocket Companies (RKT) is a fintech company that operates several brands including the flagship Rocket Mortgage. I think RKT presents an opportunity to buy serious value at a cheap price, because the market has not priced in the underlying fact that RKT is a tech company akin to Square, Paypal, etc.

RKT has disrupted the lending industry and has embraced a fully digital ecosystem, which will continue to drive customer acquisition and retention in the future

RKT spends considerable money and resources on UX/UI development, client experience, and marketing. This will also help drive their continued expansion into the lending market.

RKTs balance sheet, income, and liabilities support a stock price several times higher than the current price.

Price Target

Median: $24.62
High: $33.00

Comparable on P/E ratio

forward-looking P/E ratio of just over 5.5 – making KRT undervalued
Sector (mortgages companies) median P/E ratio is ~10
Similar Fin Tech company, like Fiserv has P/E ratio of 24x).

Assume RKT is worth 15x earnings, and that it hits the estimate of $3.85 eps. That would put its fair value right now at $57.75 per share.

Management

The RKT team is not the new kids on the block, they have decades of industry experience. Also, I value leaders that make people feel valued. And on that note, under CEO Jay Farner Quicken Loans has been in the top 30 of Fortune’s “100 Best Companies to Work For” list for 17 consecutive years.

Financials Summary

When it comes to the numbers, RKT is killing it. I don’t want to just spout a bunch of numbers that anyone can easily go look up so here’s a couple that stood out to me from the Q3 earnings announcement and related data:

$4.63 billion in revenue, which is 163% YoY growth.
From that revenue, they beat EPS estimates with $1.21 for the quarter vs $1.09 expected.
Net income was $2.4 billion which represents a YoY growth of 365%.
Closed loan volume YoY growth was 122% to $89B.
Net rate lock volume was $94.7 Billion (101% growth).

Product Channel Growth

Direct-to-consumer Q3 growth: 131% YoY ($53.5B closed loan volume)
Partner Network growth 127% YoY ($29.6B closed volume)
Adjusted Revenue for Partner Network is up 502% YTD vs 2019 ( see Q3 earnings transcript)

Options Chain

Calls for March 5, 2021 as of February 26, 2021 (note: these prices will likely be differnt when viewed in real time)

https://finance.yahoo.com/quote/RKT/options/

Contract Name	Strike	Last Price	Volume	Open Interest	Implied Volatility
RKT210305C00020000	$ 20.00	$ 2.01	2,260	2,238	0.00%
RKT210305C00020500	$ 20.50	$ 1.62	1,332	2,291	0.00%
RKT210305C00021000	$ 21.00	$ 1.44	2,971	2,918	0.00%
RKT210305C00021500	$ 21.50	$ 1.04	2,013	1,431	0.00%
RKT210305C00022000	$ 22.00	$ 0.85	10,224	5,330	3.13%
RKT210305C00022500	$ 22.50	$ 0.73	8,495	3,009	6.25%
RKT210305C00023000	$ 23.00	$ 0.64	11,797	6,783	12.50%
RKT210305C00023500	$ 23.50	$ 0.57	4,102	1,274	12.50%
RKT210305C00024000	$ 24.00	$ 0.49	5,533	3,698	25.00%
RKT210305C00024500	$ 24.50	$ 0.46	1,141	828	25.00%
RKT210305C00025000	$ 25.00	$ 0.40	14,286	7,852	25.00%
RKT210305C00026000	$ 26.00	$ 0.32	3,605	2,100	50.00%
RKT210305C00026500	$ 26.50	$ 0.28	497	567	50.00%
RKT210305C00027000	$ 27.00	$ 0.26	2,048	1,150	50.00%
RKT210305C00027500	$ 27.50	$ 0.23	265	250	50.00%
RKT210305C00028000	$ 28.00	$ 0.21	607	949	50.00%
RKT210305C00028500	$ 28.50	$ 0.19	391	365	50.00%
RKT210305C00029000	$ 29.00	$ 0.16	162	198	50.00%
RKT210305C00030000	$ 30.00	$ 0.15	2,768	1,958	50.00%