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Why Rocket Companies Is Plunging on Thursday

By Matthew Frankel, CFP® – Sep 3, 2020 at 10:13AM

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The recent IPO has been on fire lately, but it is pulling back today.

What happened

The stock market was having a rough day Thursday, with many high-flying tech stocks having an especially challenging time. However, Rocket Companies (RKT -4.00%), the parent company of Rocket Mortgage and Quicken Loans which recently completed its IPO, was a particular laggard. As of 10:30 a.m. EDT, Rocket's stock price had fallen by more than 10%.

So what

The short answer is that Rocket Companies' first earnings report as a public company disappointed investors. But this may seem odd, especially since the company preannounced its second-quarter results weeks ago, and the numbers just released matched up perfectly with what we already knew.

Young couple holding keys in house.

Image source: Getty Images.

The difference is that we now got to see the company's full earnings report, including its guidance for the third quarter and the rest of the year. This seems to be what is disappointing investors. Gain-on-sale margins are expected to fall from 5.19% in the second quarter (which was fueled by high demand) to 4.05%-4.3% in the third. And although origination volume is expected to increase in the third quarter, the estimate is likely worse than investors had hoped.

Now what

The mortgage industry is absolutely on fire right now, mainly fueled by record low interest rates, which has generated excellent revenue for Rocket so far in 2020. While it's unclear whether the refinancing and purchase mortgage boom will last, given the stock had risen by more than 60% since the middle of August, it's not surprising that any disappointing news in the earnings report would lead to a pullback.

Matthew Frankel, CFP has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Rocket Companies, Inc. Stock Quote
Rocket Companies, Inc.
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