Last night, the three major indexes of US stocks closed down collectively, and the GFAA was not spared all the declines. New energy concept stocks were also among the top decliners. Tesla, together with the three new automakers, lost nearly US$300 billion in market value overnight.
In the mess, a stock that had been silent for more than half a year suddenly bucked the trend and soared.
On Tuesday, Rocket Companies (RKT) soared by more than 70%. Due to the extreme volatility, trading of the stock was suspended three times during the session. As of the close, at 41.6 US dollars, the latest total market value of 82.55 billion US dollars. The accelerated decline of U.S. stocks in late trading may be related to the skyrocketing rise of this stock.
It is worth mentioning that the stock turnover reached a staggering 13.5 billion US dollars, second only to Tesla’s 16.7 billion US dollars, ranking second among all listed companies in the US stock market, with a turnover rate of 376.6%.
What is the origin of this little-known company, and why is it soaring into the sky on a rocket?
1 Value geometry
Rocket Companies is an online mortgage company and the largest home mortgage lender in the United States.
The company landed on the New York Stock Exchange in August 2020 and was one of the largest IPOs last year. The stock’s opening price on the first day of listing was US$18. Before it surged by 70% yesterday, the stock had little volatility, and the increase since its listing was only 35%.
On the surface, Rocket is a rather complicated company with 12 subsidiaries. Among them, Quicken Loans was the second largest mortgage bank after Wells Fargo in 2018.
But in fact, the company’s main business is very clear, focusing on operations in the loan market. There are only two business units in the financial statements, which are directly facing consumers and partner networks.
In 2019, the company’s total revenue was 51.7 billion U.S. dollars and net profit was nearly 900 million U.S. dollars.
Of the total loan origination, more than 60% are direct-to-consumer loans, with an amount of 31.8 billion U.S. dollars; partner network loans account for 40%, with a specific amount of 19.9 billion U.S. dollars.
Last week, the company announced its fourth-quarter 2020 earnings report that exceeded expectations. According to data, the company provided new loans worth US$107 billion in the fourth quarter, exceeding expectations from US$88 billion to US$93 billion.
Data source: company announcement
Regarding this financial report, Wells Fargo analysts issued a report saying, “We are very impressed with Rocket Companies’ fourth-quarter results, especially the elasticity of profit margins directly to consumers.” The bank believes that “if interest rates rise will cause more In a chaotic environment, Rocket Companies is also in a good position to capture market share.”
In fact, with the recent increase in US Treasury bond yields, the average 30-year mortgage interest rate has also risen.
After the announcement of the results, RKT rose for two consecutive trading days, with a cumulative increase of 22%. However, in response to the stock’s surge last night, Wells Fargo analysts believe that this has nothing to do with its performance and fundamentals. The main reason is that this stock has been spotted by retail investors in the WSB forum.
2 Retail investors attack again
The first thing to be clear is that although Rocket Companies has a good financial report, Wall Street is controversial with this company. The biggest controversy is whether this is a mortgage provider that is sensitive to fluctuations in mortgage interest rates or a technology company with growth potential.
This different view on this point determines that the data model referred to when evaluating its valuation is different. Therefore, quite a few institutions on Wall Street do not like this company. This has led to huge short-selling by Rocket Companies.
According to statistics from S3 Partners, in the past 7 days, Rocket Companies’ short-selling scale has increased by US$92 million. In the past 30 days, this figure is nearly 350 million U.S. dollars. The data shows that the company has approximately 49.7 million shares, that is, nearly 40% of the saleable stocks are shorted, and short positions reach $1.21 billion.
As a result, the stock soared last night, causing hedge funds to sell other stocks to close their short positions in Rocket. This is why it is said that the late U.S. stock market crash is related to this stock.
Like the previous game station, the company ranks among the top in the list of hedge funds shorted. The retail investors of the WSB Forum will naturally not miss this opportunity.
In recent days, Rocket has been a hot discussion stock on the WSB forum. A large number of posts about Rocket have more than 2,000 replies, and there are more than 27,000 replies.
Friends in the forum said in the post, “I like RKT. A total of 1.7 million US dollars, let us YOLO.” This post immediately attracted more than 1,700 comments.
Some friends also said, “I made 180,000 U.S. dollars from RKT in 4 hours. It’s time to give my wife the wedding she dreamed of.”
The enthusiasm of the friends in the altar was infected with each other, which immediately caused agitation. You have already seen the power of American retail investors in game stations before. However, after the long and short wars surrounding the game station died down, it turned out that retail investors did not exhaust all the birds and forests, but were actively waiting for the next goal.
“Rocket Ascends” is one of their favorite expressions and slogans. This company named after the rocket is their new goal.
However, according to the artificial intelligence company Accrete, on Rocket, the current chat is not as intense as on the game station. In addition, Rocket’s short selling rate of 39.7% is far less than the game station’s 144%. Therefore, Rocket is likely not to have such a dramatic increase in Game Station before.
Ihor dusanwsky, general manager of predictive analytics at S3 Partners, said: “This is another’GameStop-style’ short-term event.
On February 25, after Rocket released its fourth-quarter 2020 earnings report, analyst Ryan Carr raised the target price of the stock from US$27.5 to US$30. After last night, the stock’s current share price has exceeded $40.
After the game station’s stock price upset within a week, it was originally thought that under the supervision of the Securities Regulatory Commission and the joint “strangulation” of brokerages and Wall Street agencies, retail investors had become scattered. Unexpectedly, last week, they made a comeback, and the game post rose by 104% overnight.
Now, the little-known Rocket has risen by more than 70% overnight. Could it be that the confrontation between retail investors and Wall Street bears will become the norm in the US stock market in the future?
If this is the case, fund managers and listed companies only need to spend some expenses to buy the big Vs of the WSB forum, or personally dispatch troops to register for forum accounts and tout their own heavy stocks. Wouldn’t they be able to make a lot of money?
We don’t know if there are any tricks behind the rise of concept stocks such as Rocket and Game Station. However, it is impossible for the SEC to sit idly by and ignore this disorder.
Last month, the U.S. House of Representatives Financial Services Committee held a hearing on the game station incident. Retail representatives Keith Patrick Gill, online trading platform Robinhood, short-selling agency Melvin Capital, and Citadel who rescued Melvin Capital attended the hearing. Meeting.
In addition, it was revealed that the SEC may soon re-evaluate the listing standards of major exchanges, or block the listing of speculative penny stocks (stocks with a stock price of less than $5) on the Nasdaq and the New York Stock Exchange.
The SEC believes that these companies have little or no gains and are highly speculative. After the retail frenzy, the SEC noticed the issue of the listing policy for such stocks.
At the hearing of the SEC chairman-designate held in the U.S. Senate on Tuesday, SEC chairman candidate Gary Gensler said that he would conduct a comprehensive review of the issues behind the game post retail short-squeeze incident. Relevant comments suggest that in the next four years, Wall Street may usher in strong supervision.
Reprint indicated source：Spark Global Limited information