If you are wondering whether Rocket Companies stock is attractively priced or already reflecting its prospects, starting with a clear view of its recent performance can help frame that valuation question.
Rocket Companies recently closed at US$14.73, with the stock up 11.4% over the past week and 6.8% over the past month, but down 25.9% year to date and up 2.8% over the past year, while the three year return stands at 65.6% and the five year return shows a decline of 13.4%.
Recent coverage around the mortgage and housing market has kept Rocket Companies in focus, as investors weigh how interest rate trends and refinancing activity could influence the business. This backdrop helps explain why the stock has seen both periods of strong gains and stretches of weaker performance across different time frames.
On Simply Wall St’s valuation checks, Rocket Companies currently holds a value score of 2 out of 6. This sets up a closer look at how methods like discounted cash flow and multiples compare, and why some investors may prefer a broader narrative based view of valuation that will be covered at the end of this article.
Rocket Companies scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.
The Excess Returns model for Rocket Companies looks at whether the stock price is supported by how efficiently the company is expected to use shareholder capital, rather than focusing on short term earnings swings. It compares the return Rocket Companies is projected to earn on its equity with the cost of that equity, then capitalizes the difference.
On this approach, Rocket Companies has an estimated Book Value of $8.22 per share and a Stable EPS of $0.94 per share, based on weighted future Return on Equity estimates from 5 analysts. The implied Cost of Equity is $0.81 per share, which leaves an Excess Return of $0.13 per share. The Average Return on Equity used in the model is 10.00%, and the Stable Book Value is $9.44 per share, again sourced from weighted analyst estimates.
Feeding these inputs into the Excess Returns framework produces an intrinsic value estimate of $12.09 per share. Compared with the recent share price of $14.73, the model indicates Rocket Companies trades at a 21.8% premium to this estimate, so it screens as overvalued on this method.
For a business like Rocket Companies, where investors often focus on revenue capacity through mortgage and related services, the P/S ratio is a useful yardstick because it compares what the market is paying for each dollar of sales rather than relying on near term earnings, which can be more volatile.
In general, higher growth expectations and lower perceived risk can support a higher “normal” or “fair” P/S multiple, while slower growth or higher risk tends to justify a lower multiple. Rocket Companies currently trades on a P/S ratio of 4.68x. This sits above the Diversified Financial industry average P/S of 2.14x and above the peer average of 2.03x, which signals that the stock is priced at a premium to many comparable companies.
Simply Wall St’s Fair Ratio for Rocket Companies is 5.07x. This is a proprietary estimate of what the P/S multiple could reasonably be given factors such as earnings growth, profit margins, industry, market cap and company specific risks. Because it adjusts for these fundamentals, the Fair Ratio can be more tailored than a simple comparison with peers or the broad industry. With the current 4.68x P/S ratio sitting below the 5.07x Fair Ratio, the stock screens as undervalued on this approach.
Upgrade Your Decision Making: Choose your Rocket Companies Narrative
Earlier the article mentioned that there is an even better way to understand valuation. Narratives let you attach a clear story about Rocket Companies to the numbers by linking your view of its business to specific forecasts for revenue, earnings, margins and a fair value that can be compared directly with the current share price.
On Simply Wall St’s Community page, Narratives are presented as an easy tool where each investor sets assumptions and gets a fair value estimate that updates automatically when new information such as earnings or news is released. This way, you always see how fresh data affects your story and whether you think the stock is trading above or below your view of fair value.
For Rocket Companies today, one community Narrative anchors on a higher fair value of US$40.00 per share based on expectations such as US$14b of revenue in two years. Another community Narrative anchors on a lower fair value of about US$16.50, and a third sits in the middle at roughly US$20.05. This shows how different but clearly spelled out assumptions can coexist and gives you a transparent range of perspectives to benchmark your own view against.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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