By Orla McCaffrey
The individual investors that powered GameStop Corp.'s meteoric
rise have a new target: Rocket Cos., the parent company of Quicken
Loans.
Shares of the mortgage lender surged 28% since the end of last
week. Nearly 377 million shares traded hands on Tuesday alone, more
than a 10-fold increase from the previous day. After surging 71% on
Tuesday, the stock lost some steam on Wednesday, falling 33%, or
$13.59, to $28.01.
Like GameStop, Rocket is heavily shorted. As of this week, 46%
of its shares available for trading were being shorted by investors
betting the price would fall, according to S3 Partners, a
data-analytics firm. That was up from about 33% in late January and
17% in mid-September, according to FactSet.
Trading of Rocket shares was halted several times this week
because of its volatility.
Individual investors on WallStreetBets, the Reddit community
that gave birth to GameStop's rise, have been encouraging each
other to buy the stock in recent days and sharing evidence of their
own massive gains. They have relished in the company's name -- --
Rocket -- -- an apt one for their goal of higher prices.
"The $RKT is fueled and ready for liftoff," one user wrote early
this week.
The company stock symbol, RKT, was mentioned in nearly 16,000
Reddit comments on Tuesday, according to data from TopStonks.com, a
website that tracks equities mentioned on Reddit. That is up from
just over 6,000 on Monday and less than 1,000 on most days last
week.
Rocket announced last week it would pay a one-time dividend of
$1.11 per share later this month, citing its "highly profitable and
capital light business model." Some investors saw the move as a way
to fend off short sellers. Short sellers are obliged to pay any
dividends to the broker they borrowed shares from.
The company's excess capital at the end of the fourth quarter
made the dividend possible, Rocket CEO Jay Farner said at a
conference Wednesday morning.
"We were pretty proud to be able to offer that to our
shareholders," Mr. Farner said. "We think more of dividends as
special dividends because we want that flexibility to make the
right investment for the long-term growth of the organization."
Rocket has other upsides. Rising mortgage rates are boosting
earning potential for mortgage lenders just as the crucial spring
home-selling season kicks off. The average rate on the 30-year
fixed-rate mortgage rose to 2.97% recently, its highest level since
August.
Detroit-based Rocket is the largest mortgage lender in the U.S.,
according to research firm Inside Mortgage Finance. Its $323
billion in home loans in 2020 easily surpassed the $221 billion
originated by its closest competitor, Wells Fargo & Co. Its
large size and strong brand -- it ran two Super Bowl commercials --
set it apart from other nonbank lenders.
Before Rocket's blastoff, shares of nonbank mortgage lenders had
done little to impress investors in recent months. Some of the
lenders that listed their shares on the public market in recent
months significantly downsized their offerings. Some never made it
to market because of tepid investor interest.
Shares of Rocket hadn't strayed too far from their listing price
of $18 in the seven months since the company's IPO. The stock
soared to more than $31 in its first month but quickly returned to
near $20.
The first sign of liftoff came late last week, when Rocket
reported impressive fourth-quarter results. Shares rose almost 10%
on Friday. The news of a sizable dividend prompted Rocket's initial
jump in stock price, said KBW analyst Bose George.
"The initial move made some sense, but since then, fundamentals
haven't been driving it," Mr. George said. "It's other factors that
we have a harder time assessing."
Shortly before its public-market debut last summer, Rocket
announced an ambitious expansion target: cornering 25% of the
mortgage market over the next decade. Its market share currently
stands at about a third of that, according to Inside Mortgage
Finance.
Rocket said last week that its mortgage originations more than
doubled in 2020. It said it expects continued high origination
levels despite weakening margins.
The amount lenders earn when they sell each loan has started to
drop. Quicken's gain-on-sale margin was 4.41% in the fourth
quarter, down from the third quarter but well above the 3.41% it
recorded a year earlier. It expects its first-quarter margin to be
between 3.6% and 3.9%.
Cleveland Cavaliers owner Dan Gilbert helped found Quicken Loans
in the 1980s and still holds the majority of its shares.
Ali Habhab has watched the stock's recent ride with interest but
doesn't plan to sell his shares any time soon. Mr. Habhab, who is
25 years old, instead hopes his returns will bring him closer to
his goal of retiring at 40. He bought 1,000 shares in Rocket
shortly after the company's IPO in August.
Mr. Habhab, who works in automotive manufacturing, said he was
familiar with Quicken Loans long before parent company Rocket
decided to IPO. Mr. Habhab lives in Detroit, where Rocket is based,
and has friends who started careers at the company or one of its
subsidiaries.
"With all that factored in, it was a no-brainer to put some of
my money where it belongs and where it will grow," Mr. Habhab
said.
Another major nonbank mortgage lender, UWM Holdings Corp. is up
27% so far this week.
Write to Orla McCaffrey at orla.mccaffrey@wsj.com
(END) Dow Jones Newswires
March 03, 2021 17:39 ET (22:39 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.
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