Big Profits And Lots of Short Sellers Could Make Rocket Companies a Winner

Rocket Companies, a mortgage originator, has returned solid profits in 2020’s hot real estate market:

Boosted by the boom in mortgage refinancing activity, the company had $15.7 billion in total revenue, or more than triple its $5.1 billion revenue in 2019.

Its net income, or profit, skyrocketed to $9.4 billion from just under $1 billion the year before. And the company increased its closely watched gain on sale margin by 127 basis points year-over-year to 4.46%.

It’s also the number 2 most popular stock on Reddit’s Wallstreetbets.

And yet, short sellers are betting against the company: 37% of shares are sold short (measured as a percentage of the float). This is comparable to money losing companies like Tanger Factory Outlet Centers.

It’s true that Rocket does face risks from increasing interest rates, but big profits along with a not-outrageous valuation for a high growth company mitigate that. Add in the possibility of a short squeeze and things get interesting.

I prefer a more diversified portfolio, but compared to other Reddit darlings like GameStop, Palantir and Sundial Growers, Rocket looks a lot more attractive.

For more on the Wallstreetbets phenomenon, check out these posts:

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Photo: “ATREX – Sounding Rockets” by NASA Goddard Photo and Video is licensed under CC BY 2.0

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