Rocket Companies’s stock price has taken a beating over the past six months, shedding 23.5% of its value and falling to $13.86 per share. This may have investors wondering how to approach the situation.
Is now the time to buy Rocket Companies, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Is Rocket Companies Not Exciting?
Despite the more favorable entry price, we don't have much confidence in Rocket Companies. Here are three reasons why RKT doesn't excite us and a stock we'd rather own.
1. Revenue Spiraling Downwards
In general, banks make money from two primary sources. The first is net interest income, which is interest earned on loans, mortgages, and investments in securities minus interest paid out on deposits. The second source is non-interest income, which can come from bank account, credit card, wealth management, investing banking, and trading fees.
Rocket Companies’s demand was weak over the last five years as its revenue fell at a 15% annual rate. This wasn’t a great result and signals it’s a lower quality business.
2. EPS Trending Down
Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
Sadly for Rocket Companies, its EPS declined by 39.8% annually over the last five years, more than its revenue. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.
3. Previous Growth Initiatives Haven’t Impressed
Return on equity (ROE) measures how effectively banks generate profit from each dollar of shareholder equity - a critical funding source. High-ROE institutions typically compound shareholder wealth faster over time through retained earnings, share repurchases, and dividend payments.
Over the last five years, Rocket Companies has averaged an ROE of 9.2%, uninspiring for a company operating in a sector where the average shakes out around 7.5%.
Final Judgment
Rocket Companies’s business quality ultimately falls short of our standards. After the recent drawdown, the stock trades at 1.6× forward P/B (or $13.86 per share). Beauty is in the eye of the beholder, but we don’t really see a big opportunity at the moment. We're pretty confident there are more exciting stocks to buy at the moment. We’d suggest looking at a dominant Aerospace business that has perfected its M&A strategy.
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