![]() ![]() We’re going to take a long, hard look at the business, regulation, and valuation of RKT stock, and how investors should play one of 2020’s largest IPOs. And with only a 9.2% market share in a massive $2.2 trillion market, the company has ample room to grow. In just two short years, the Detroit-based fintech company has quietly become America’s largest mortgage originator. With shares rebounding yet again, it’s time to ask: is RKT stock a good long-term investment? Upending Mortgage Lending Nicolas Chahine is the managing director of. On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. It has seen bad days, but long term it’s a buy. In summary, Rocket stock has proven itself to be a fast mover. This would be an attempt to create income without any out-of-pocket expense. Those who do not want to do that can sell a put spread instead. Selling puts commits the investor to buying the shares at that price. Whereas someone who sold the $21 put would still have profits on their hands. If price falls to $20 then the investors would have lost 13% already. The breakeven for that is around $19 per share.Ĭompare this with buying the shares now and leaving absolutely no room for error. If the price stays above $21 then they would win the equivalent of an 8% rally from $23. This puts them long the stock now without a need to rally to profit. Investors can use options to build a buffer in case the malaise on Wall Street persists.įor example, an investor can sell the Rocket $21 October 30 put and collect almost $2 for it. Regardless of how good the micro economic conditions are for RKT, it has to trade within a terrible macro environment. We just saw a 10% drop in mere hours and this could be just the beginning. If the markets overall correct, Rocket will too. Consequently, it is important to acknowledge that there is risk to Rocket stock to no fault of its own. We still have millions of Americans out of work and GDP is shrinking. While stocks have recovered from the quarantine bottom, the economy has not. ![]() Current Economic Conditions Are a Short Term Factor But the point is to take advantage of the opportunity that exists for the next few years. Weather Rocket stock recovers its highs now or in 12 months is unclear. Furthermore, they can also assume that if they can break above $26, then buyers will chase the momentum higher. The bulls can assume that there is support between $21 and $22 per share. From its wild range I can pick $25 and $22 per share as two important short term levels. It now sits just below the midpoint of the entire range, and just above the most recent support level. In under two months of existence it has already experienced at least six rallies larger than 10% in both directions. We already said that this is a momentum stock so it moves fast in both directions. Then out of nowhere it rallied almost 100% to its high near $34 per share. It immediately reverted 30% lower from that high. In its early IPO days, RKT stock came out of the box screening up 50% in hours. Technically there are reasons to expect that the recent 30% correction is an opportunity to buy the dip. RKT Stock Chart Shows Support Below and Opportunity Above Either way, RKT stock will benefit from that. People love to use home equity as an ATM machine for big ticket spending like buying cars or installing pools. This means that the refinancing activity will also remain high for as long as rates are low. Thanks to the stringent lending rules after the 2008 crash, the loan-to-values now are still low. Moreover, the quarantine benefited RKT because everyone is using online processes. Federal Reserve has dug itself a hole where it needs to suppress rates for decades. There will be demand for its services for years to come. This is an environment conducive for a company like Rocket to flourish. Borrowing costs have never been lower or for this long. Thanks to central banks keeping rates near zero it has been cheap to transact in real estate. ![]() We don’t have many guides for Rocket but we can borrow from its industry. Buy it for the long term because the upside potential is larger than the downside risk. Since it is still so young it doesn’t have any fundamental metrics, so the thesis is easy. ![]()
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