Mortgage Market Bottom? Why Rocket Companies Could Be a Buy

Key Points

• After beating the S&P 500 over the past month and leaving its peers behind, shares of Rocket Companies stock might have more left in them.
• Wall Street analysts agree as they've kept a double-digit upside potential behind the stock.
• Institutional investors like the thesis behind the stock and the housing market, hence their recent buying of it.

There have been recent developments in the real estate sector guiding investors to become fearful of investing in stocks related to the space. However, not all stocks may be exposed to this level of downside risk in the housing market, as some do carry better risk-to-reward setups behind them, and where today’s opportunity for value and momentum investors comes from.

With this in mind, it is important to note that shares of Zillow Group Inc. NASDAQ: Z have shown investors how weak the consumer housing cycle might be today. Reporting weakness in transactions, with a focus on rental revenue and fees, the theme is clear that consumers today are not necessarily in the market for a home but resort to renting and leasing instead.

This might turn some away from investing in mortgage and real estate finance-related stocks, as can be seen through the recent 12% decline in shares of SoFi Technologies Inc. NASDAQ: SOFI over the past couple of weeks, where the company’s quarterly earnings results also drove fear into the name. However, despite these names falling in price action, one has been breaking out recently, and that’s Rocket Companies Inc. NYSE: RKT.

The Worst Is Already Priced In for Rocket Companies Stock

Because the stock is trading at 61% of its 52-week high today, investors could safely assume that the worst-case scenario has already been priced in for the company. On a more fundamental basis, investors can look at the mortgage market index and its current level, which represents a 1996 low.

That means that there is only upside potential to go from here. When mortgage volume picks up in the broader market, earnings and fees activity for Rocket Companies will follow along as well. Even if these earnings take longer to show up for the company, investors can seek refuge in the stock’s discount.

This discount is the one factor that Zillow and SoFi lacked. Since they traded within 90% of their 52-week highs, the assumption could have been made that markets already had priced in most—if not all—of their financials' future financial growth.

More than that, investors can see the recent buying activity that came into Rocket Companies stock recently. Those from the Vanguard Group decided to boost their holdings in the stock by as much as 3.6% as of February 2025, an allocation that brought their net position to a high of $140.9 million today and another bullish factor investors need to consider.

With the stock breaking out with a 12.7% rally over the past month alone, chances are that more buyers will come in as they realize that the reward far outweighs the risk in Rocket Companies stock today, but that’s only half the equation.

The Market’s Take on Rocket Companies Stock

The other half of the equation lies in how the market and Wall Street feel about Rocket Companies' stock today. Investors can begin their gauging process by looking over the $18 per share price target set on the name by the Royal Bank of Canada as of November 2024, foreseeing the potential bottom in mortgages with a 38% upside potential.

Wall Street analysts support these views with an EPS forecast of up to $0.14 for Q2 2025. That’s nearly double today’s $0.08, potentially pushing the stock past recent highs.

Now, investors need to figure out how the broader market is taking on these future earnings. A positive view would mean a premium valuation compared to the rest of the industry, which Rocket Companies stock fills today. By trading at a price-to-book (P/B) ratio of 3.1x, Rocket Companies stock is well above the mortgage industry’s 1.8x average valuation.

While some investors might call this expensive, seasoned professionals will remind them that the market is always willing to pay a premium for stocks it believes will outperform not only the peer group but the market itself, a fate that this stock has already started to fulfill.

Over the past month, Rocket Companies stock outperformed the broader S&P 500 by as much as 18% to show investors where the momentum (and the market’s preference) has started to shift recently. With this in mind, the conclusion is clear that the fundamentals and some technical factors align in favor of this fantastic risk-to-reward setting in shares of Rocket Companies.