Rocket Companies: We've Got Lift Off

An overview of the refinancing giant

Rocket’s been on a tear. Rallying 34% over the past 3 months, lapping QQQ, SPY, and KRE (banks). So, what’s behind this run up and is it a buy now with mortgage rates around 6.5%?

Source: TradingView

tldr:

Rocket Companies, the self-proclaimed "Most Optimistic Company in the World," is harnessing AI to transform the mortgage industry. Their ambitious goal? To make getting a home loan almost as easy as ordering takeout online. As the leader in mortgage refinancing and origination, Rocket offers investors a pure play on people wanting to lower their mortgage rates.

And while the company's high valuation suggests Wall Street's optimism might even outpace Rocket's, there's no denying the stock's potential. Rocket's earnings show impressive sensitivity to market fluctuations, offering investors significant "torque" in their mortgage market exposure. If mortgage activity picks up, Rocket's earnings could blast off faster than you can say "approved."

Current Set-Up:

$38 billion market cap on $4.5 billion in LTM revenue and $6.1 billion in estimated ‘26 revenue. 8.4x price to sales ratio on a trailing basis and 6x to forwards.

This looks cheap to NVDA’s 40x trailing P/S ratio. Editor’s note: this is sarcastic since RKT is clearly not creating new blue-sky AI opportunities, it’s a mortgage company. But a mortgage company that does mention AI a lot, so at least it’s got that going for it, which is nice.

An Almost Too Short History:

Source: Rocket Companies

Rocket Companies' story is closely tied to its founder and chairman, Dan Gilbert. Born in Detroit, Gilbert started Rock Financial (now Rocket Mortgage) in 1985 at age 22. His vision drove the company's transformation from a local lender to a fintech leader, particularly with the shift to online lending in the late 1990s and the launch of Rocket Mortgage in 2015. Away from RKT Gilbert is a big personality and owner of the Cleveland Cavaliers.

Rocket went public on the NYSE under the ticker "RKT" on August 6, 2020. The IPO raised $1.8 billion, valuing the company at around $36 billion on roughly $15.6 billion of revenue. Pretty good “capital allocation” or at least timing in my opinion, as this was the secular high in the stock. Afterall in 2020, Rocket's origination volume hit $320 billion and using 2021’s stats it can be inferred that their origination was about 7% to 8% of the total $4 to $4.5 trillion originated.

Today, Rocket is leveraging AI to transform their operations and customer experience. Their AI-powered live chat has led to conversion rates three times higher than non-chat interactions. The Rocket Logic Assistant, their AI tool, is generating over 300,000 detailed call transcripts weekly and automating data entry for more than 100 fields in mortgage applications. This automation significantly reduces processing time and costs. Additionally, AI is enabling Rocket to handle more client interactions, improve decision-making, and personalize services at scale. While specific productivity gains aren't quantified, Rocket emphasizes that AI is allowing them to scale up significantly while keeping fixed costs roughly the same, indicating substantial efficiency improvements.

Current CEO Varun Krishna is a tech veteran turned mortgage evangelist. He’s on a mission to revolutionize home loans with cutting-edge tech. With 20+ years at giants like Intuit and PayPal, Krishna's bringing Silicon Valley innovation to Main Street mortgages. Rocket's current mission? "Help everyone home” through a modern homebuying experience.

Source: Rocket Companies

How Does Rocket Make Money: