What happened
Shares of Rocket Companies (RKT +4.75%) soared 71% to a new closing high of $41.60 on Tuesday.
So what
After igniting short squeezes that helped drive up the prices of companies such as GameStop (GME 2.20%), AMC Entertainment, and Sundial Growers earlier this year, Reddit's traders appear to have found a new candidate.
More than 45% of Rocket Companies' freely traded shares were sold short as of the market close on Monday, according to S3 Partners. That was apparently enough to entice members of the WallStreetBets Reddit group.
Rocket Companies' shareholders have enjoyed torrid gains this week. Image source: Getty Images.
With its 9.4 million members, WallStreetBets has the heft to move the prices of certain stocks violently to the upside, at least temporarily. As an example, the group is widely credited for helping to fuel a rally in GameStop that saw the video game retailer's shares rise from $17.25 on Jan. 4 to as high as $483 on Jan. 28. However, the stock subsequently fell below $40 by Feb. 19, before rallying back above $100 in recent days.
Now, it appears that WallStreetBets' traders are once again coordinating their purchases in an attempt to drive up a stock's price -- this time with Rocket Companies as their target. After bullish mentions of Rocket surged on Reddit and other social media platforms this week, so too has the stock's trading volumes. The surge in buying, in turn, has helped to fuel a greater than 100% rally in Rocket's stock price since Feb. 25.
Now what
What's interesting about this latest move by Reddit's traders is that -- unlike GameStop and many of the other stocks they've targeted in the past -- Rocket Companies actually has some solid business fundamentals. The mortgage giant recently delivered strong fourth-quarter results, including 144% revenue growth and a 277% rise in net income. Rocket was so profitable that it even declared a $1.11-per-share special dividend.
So the bulls may have more justification for battling the bears betting against Rocket Companies than they've had in their previous short squeeze attempts. Nevertheless, traders buying Rocket's stock at these elevated prices are taking on a lot of risk, as this latest trading onslaught could quickly fizzle out, like many of its predecessors.
