Short Selling

Rocket Companies: Short Interest is Rising

Rocket Companies Inc
(RKT: US)
12 months:
-45.29%
Activity:
Bearish
Pattern:
Rising short interest
News:
Q1 results
Rocket Companies Inc
(RKT: US)
12 months:
-45.29%
Activity:
Bearish
Pattern:
Rising short interest
News:
Q1 results

Analyzing short interest data can help active investors avoid large losses. If the short sellers are targeting a stock, there’s usually a very good reason they are doing so.

In this report, we are going to take a look at the short interest data on Rocket Companies Inc (RKT:US). Rocket is an American FinTech company that operates in the mortgage space. Its flagship business, Rocket Mortgage, is the nation’s largest mortgage lender, having closed more than $1 trillion of home sales since inception. The company is listed on the New York Stock Exchange and currently has a market cap of $18.54 billion.

Rocket Companies: Short Interest Data

Looking at the short selling data on Rocket, we see two major red flags. The first is that short interest is very high. At present, 43.8 million shares are on loan, which represents 36.9% of the free float. This indicates a high level of bearish sentiment towards the stock among institutional investors.

The second red flag is that the number of shares on loan is rising rapidly. Back at the start of 2022, just 17.9 million shares were on loan here. Since then, the figure has increased by 145%. That is a significant increase, which is concerning as sharp rises in short interest often precede share price weakness.

Rising Interest Rates are Hurting Rocket

As for why short sellers are ramping up their downside bets here, it’s most likely related to rising interest rates. In the US, interest rates have increased significantly this year, and this is having a negative impact on demand for mortgages.

This lower demand for mortgages is reflected in Rocket’s recent Q1 results. For the period, the group generated adjusted revenue of $1.9 billion, down 52% year on year and below the consensus forecast of $2.2 billion. Meanwhile, adjusted diluted earnings per share came in at $0.15 versus $0.91 a year earlier, and below the consensus forecast of $0.19. With most economists expecting the US Federal Reserve to hike rates further in the coming months to combat inflation, there could be further pain ahead for Rocket.

Since the company’s Q1 results, a number of brokers have cut their price targets for the stock. JP Morgan has gone from $11.50 to $9.00 while Piper Sandler has gone from $14 to $9.00.

Given the high, and rising, level of short interest, we think caution is warranted towards Rocket stock right now.

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