The WallStreetBets forum on the Reddit Inc. website on a laptop and the logo on a smartphone organized in Hastings-On-Hudson, New York, USA, on Friday, January 29, 2021.
Tiffany Hagler-Geard | Bloomberg | Getty Images
Rocket Companies’ shares rose more than 20% on Tuesday, in a surprising move with no apparent news. The online mortgage provider currently has large short bets placed against it by hedge funds and appears to have attracted some optimistic interest from day traders on Reddit’s infamous WallStreetBets.
Nearly 40% of its available shares are short and it is near the top of the list of American companies in terms of the size of the short hedge fund bet, according to FactSet. This makes him a classic target for meme-obsessed investors, who are joining this year in stocks and options to buy heavily sold companies, to squeeze short sellers. It was unclear the size of retail interest in Rocket at this point.
A series of popular posts in the WallStreetBet chat room highlighted Rocket on Tuesday. One says “I like RKT. $ 1.7 million all-in, come on YOLO”, and quickly attracted more than 1,700 comments.
“It’s 38% insufficient … When people see this, they think you can kill salespeople,” said CNBC’s Jim Cramer in “Squawk on the Street,” adding that he actually likes the management and fundamentals of Rocket Companies business.
“I have been a huge fan of [CEO] Jay Farner and [Chairman] Dan Gilbert … and, frankly, I don’t understand why the shares didn’t react to what was very good, in which they basically exposed a story that just said: ‘We can show how when rates go up, it doesn’t hurt our business. When rates drop, it doesn’t hurt our business. ‘”
The rise of Rocket may be a sign that the retail trading craze seen on GameStop earlier this year is still a factor. A month ago, an army of retail investors on Reddit managed to push the brick-and-mortar video game retailer up 1,500% in two weeks, inflicting enormous pain on short hedge funds. The broader market has also experienced some indirect impact of the frenzy, as many large investors have taken the risk on a widespread basis.
When a stock with a high short interest rate jumps sharply upwards, it can force short sellers to hedge their bearish positions to limit their losses. The cover sold tends to further fuel the rise in the stock.
Rocket reported stronger-than-expected fourth-quarter earnings on Thursday, which impressed some Wall Street analysts. Wells Fargo slightly increased its target price and raised its profit estimate for Rocket after its big hit.
“We were impressed with fourth-quarter earnings, particularly the resilience of its direct consumer GOS margins in retail,” Donald Fandetti, an analyst at Wells, said in a note on Monday. “RKT seems to be well positioned to gain market share if the environment gets more out of place with higher rates.”
– Kevin Stankiewicz from CNBC contributed reporting.
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