Rocket Companies (NYSE:RKT), a financial mortgage loan business, appears to be the latest stock target in the GameStop short squeeze run.
Rocket’s share price soared 75% on Tuesday, as buyers piled in and pushed the shorts out. Trading in the stock was automatically halted three times due to the raging volatility. And this single day stock rise temporarily boosted the coffers of founder Dan Gilbert’s wealth by a cool $25 billion!
Why don’t short sellers wake up?
As we wrote last month, not all short sellers are bad, but they’re increasingly having to be careful as a high short float creates an obvious target for a short squeeze.
TV stock pundit, Jim Cramer, doesn’t appear to have much time for these short sellers’ lack of control:
“remember if the shorts had used puts in $RKT they could have prevented their obliteration yesterday. I cannot short or own common stocks, I am an observer”
The $15 billion company created $320 billion of mortgage originations in 2020. It’s a tech-driven stock providing real estate, mortgage and financial services. Its Rocket Mortgage division is the nation’s largest mortgage lender. However, short interest in Rocket stock has been mounting.
S3 Analytics said there has been a “large amount of short selling” into the stock’s recent rally. During which time short interest has been increasing to 47.9 million shares That’s a whopping 45.8% of the public float!
Rocket is also the parent company to popular mortgage lender Quicken Loans. The combination of rapid share price rise and crazy short selling activity could have come straight out of the meme stock playbook and one that the Reddit warriors were quick to jump on.
Rocket Companies has only been publicly listed since last summer when it launched to a mediocre reception. At IPO its share only achieved $18, which was below the target of $20 to $22. Early investors will be delighted with their perseverance as today Rocket stock is trading above $41.
How is Robinhood handling the Rocket short squeeze?
Popular trading app Robinhood experienced excruciating backlash when this short squeeze trend began in January. After the company halted buys on GameStop and several other meme stocks, investors were up in arms that they could sell, but not buy, leading to an inevitable price crash.
So far Robinhood doesn’t appear to have placed any restrictions on trading Rocket stock, so hopefully it’s learned its lesson. It’s highly likely to be proceeding with caution as a Robinhood IPO is in the pipeline and insider rumours suggest it could publicly list this month.
Robinhood’s ease of use is helping the online brokerage enjoy soaring popularity as retail investors look for a quick and easy way to pile in to these heavily shorted stocks. If it plays its cards right it could enjoy very lucrative share engagement after IPO.