Let’s dive into Rocket Companies (RKT) financial statements and into what exactly this line highlighted below “Non-Controlling Interest” (NCI) is, and why it appears to take away so much of the Net Income before “Net Income attributable to Rocket Companies.”
In this screenshot below the amount of NCI is about 97% of Net Income. If you look at the most recent quarters the NCI is about 93%. Regardless of what it is RKT is slated to deliver 2021 EPS of around $2.
Positive earnings for a company trading at a 9 P/E ratio (as of today) should be doing much better in this stock environment regardless of the NCI impact yet RKT continues to trade below it’s fair value of a minimum $40 per share based on a 22 P/E ratio valuation which is the standard for S&P.
Regardless of all that, what the analysts are failing to discuss is this company is very profitable and can turn way higher EPS by the snap of it’s fingers by decreasing the NCI. A mere 3% decrease could triple EPS.
It describes that RHI is a partnership owned 94% by Dan Gilbert. This is also referred to as the class D shares. These class D shares give Dan and the C-Suite sweeping control over 70% of the voting stock giving them free rain to dictate the company as they see fit.
In some cases this could be bad but in the case of RKT I see similarities to early day Amazon in the sense that 1) they are determined to take market share at whatever means necessary to win long term and 2) they actually have the ability to be insanely profitable if they choose to be but continue to reinvest the money in growing the business (i.e. their big marketing campaign we’ve all been seeing on TV).
Getting back to my point now on the 3%. If Dan Gilbert were to sell his shares back to the company, therefore retiring the shares to decrease shares outstanding making them treasury shares which would then lower NCI while increasing EPS.
I personally find this very compelling case for investors to own shares of this company as they have proven they want to continue to grow top line revenue as best they can in the mortgage space before they begin to maximize profits. If either of these two events above occur on a fundamental basis would triple the EPS and therefore even at current P/E ratio valuation of 9 would send the stock up to $60 if their P/E would drop to 3. If the stock begins trading at S&P valuation levels of 22 P/E ratio it would be around $120 per share without considering the other revenue streams growing by triple digits.
On a fundamental analysis looking at RKT it makes no sense why the stock is trading at the levels it’s been at the past month. The bears are losing their only case now that the 10 year yield has fallen as you can see by the big gains these last few trading days.