Rocket Companies (RKT) presents an interesting case for a potential short squeeze.

• High Short Interest / Days to Cover
• Increase in Short Interest
• Solid Company Fundamentals
• Bullish Change in Sector Sentiment
• Bullish Change in Overall Market Sentiment

What is Rocket Companies?

Rocket Companies, Inc. (NYSE: RKT), a comprehensive fintech platform encompassing various tech-driven financial services including Rocket Mortgage, Rocket Homes, Rocket Loans, and Rocket Money. It has shown notable developments and financial performance in the year 2023, beating analysts estimates several quarters in a row. Analysts continue to raise their quarterly estimates as well.

Significant Short Interest

As of December 11, 2023, RKT's short interest stands at approximately 25.1 million shares, which is 19.9% of its float. The most recent short interest ratio (days to cover) is 12.4, which includes a significant 3x increase in volume this past week. This high ratio, combined with a significant percentage of the float being shorted, suggests potential for a short squeeze.

Recent Changes in Short Interest

The short interest has shown fluctuations over recent months. For instance, as of November 30, the short interest was 25,150,000 shares, a 7.0% increase from the previous total of 23,500,000 shares.

Comparative Sector Analysis

In the context of the business services sector, RKT's short interest is notably higher. For instance, other companies in the sector like Aptiv PLC and Broadridge Financial Solutions have much lower short interest percentages, indicating that RKT is under considerably more bearish pressure comparatively.

Investor Sentiment and Market Conditions

The investor sentiment towards RKT is improving and plays a crucial role. High short interest amidst positive sentiment could trigger a squeeze as short sellers rush to cover their positions to avoid losses.

In conclusion, the data suggests that RKT is a prime candidate for a short squeeze scenario, given its high short interest percentage, significant days to cover, and its standing within its sector. Now that we’ve figured that out, let’s examine recent company financials.

Recent Financial Performance (Q3 2023)

Rocket Companies reported robust results despite challenging economic conditions. The company last reported earnings on August 03, 2023 after the market close (AMC). RKT shares gained 10.5% the day following the earnings announcement to close at 11.18. Following its earnings release, 136 days ago, RKT stock has drifted 22.9% higher. From the time it announced earnings, RKT traded in a range between 7.17 and 13.85. The last price (13.74) is closer to the higher end of range.

The Q3 2023 net revenue was $1.203 billion with an adjusted revenue of $1.002 billion, surpassing the high end of guidance. GAAP net income was reported at $115 million, equivalent to $0.04 per diluted earnings per share. Notably, Rocket Mortgage generated $22.2 billion in mortgage origination closed loan volume, with a gain on sale margin of 2.76%. These figures suggest a stable financial footing, which is a critical factor in withstanding short-selling pressure and could catalyze a potential short squeeze if investor sentiment shifts positively​​.

Operational Efficiency and Innovation

The company has made significant strides in operational efficiency. With a 20% faster purchase turn time and a 20% reduction in manual touches, along with the integration of AI in their Pathfinder tool, Rocket Companies is enhancing productivity and operational efficiency. These innovations could increase investor confidence, and have a favorable impact on the stock price.

Cost Savings and Liquidity

Rocket Companies expects annualized cost savings of approximately $200 million due to various cost reduction efforts. This, coupled with a strong liquidity position of $8.7 billion, including $1.0 billion of cash on-hand, positions the company favorably in terms of financial health. You may even notice this yourself as Rocket runs highly engaging ads on social media. A solid liquidity position is beneficial for enduring market volatility and can be a positive signal to investors​​.

Market Presence and Growth

The company’s growth in Rocket accounts to 29.3 million as of Q2 2023, along with its expansive mortgage origination volume, indicates a robust market presence. This growth could attract investor interest and support the stock's upward movement, especially if coupled with a shift in market sentiment​​. Furthermore, the company acted aggressively during the pandemic, and I expect them to do the same in the soon to come lower rate environment with refinancing offers.

Future Outlook

For Q4 2023, Rocket Companies forecasts adjusted revenue between $650 million to $800 million. This forward-looking guidance, if met or exceeded, could also further influence investor sentiment positively​​. Their next earnings report is expected to be between 02/23/24 - 02/29/24. Analysts are currently expecting the company to become profitable again in 2024.

Comparative Analysis

The short interest in RKT, currently at 19.9% of its float, is considerably higher compared to other companies in the business services sector. This high short interest, coupled with the company's stable financials, might position RKT as a more likely candidate for a short squeeze scenario compared to its sector peers.

In summary, Rocket Companies’ latest financials indicate a stable and potentially growing business with significant operational efficiencies and a strong liquidity position. These factors, combined with its high short interest, could make RKT an attractive prospect for those speculating on a short squeeze.

Operational Highlights

2023 JD Power Award

Rocket Mortgage was recognized for its client satisfaction, earning the #1 spot in J.D. Power's 2023 study for client satisfaction in mortgage servicing. This accolade is a testament to Rocket Mortgage’s focus on client experience​​.

ONE Home Loan Program

Rocket Mortgage has introduced innovative products like the ONE home loan program to increase homeownership accessibility. This program is particularly targeted at low-to-moderate-income Americans, enhancing their ability to purchase homes​​.

Rocket Companies (RKT) vs Fisker (FSR)

Days to Cover RKT - 12.4 FSR - 2.53

Position

I currently have 1010 shares and 300 01/19 $13.99c contracts on $RKT. I intend to add to my position this week, likely in both shares and options. Screenshot provided as the last photo.