The army of online investors that have pumped up shares of GameStop Corp. in recent weeks appear have a new object of their affection: Detroit-based Rocket Companies Inc.
The parent company (NYSE: RKT) of billionaire Dan Gilbert's mortgage lending business Rocket Mortgage has seen its stock surge in the last few days as users of the Wall Street Bets channel on Reddit have begun pumping up the stock. At just before 3 p.m. Tuesday the stock was trading at about $38 per share, up more than 50 percent on the day.
Rocket Companies, like beleaguered retailer GameStop (NYSE: GME), has significant interest from short sellers, or investors who bet that the share price of a particular stock will go down. Short sellers, typically professional investors, have become something of an enemy to the Reddit users, who are generally considered retail investors.
As of Feb. 12, Rocket's stock was actually more shorted than GameStop is now, with nearly 40 percent of its floated shares being held by those with a short interest, according to MarketWatch. Rocket stood as the ninth most-shorted stock based on the MarketWatch data.
An added twist in Rocket's stock climb is a special payout to shareholders declared last week that could come at a cost to short sellers.
Just 30 percent of GameStop's shares are shorted. However, the Texas-based retailer has more than 50 million fewer shares available for trading. Ann Arbor-based pharmaceutical company Esperion Therapeutics Inc. (NASDAQ: ESPR) also stands as one of the most heavily-shorted stocks, based on the MarketWatch data, with more than 35 percent of its 26.9 million shares being held by short sellers.
The amount of short sellers taking an interest in Rocket makes it a natural company for the Reddit users to boost: "With 35-40%ish of the short floated the moon is the limit..." one user wrote Monday evening.
Rocket Companies CEO Jay Farner, in a late January interview on CNBC, acknowledged that as a fairly new public company — Rocket had its initial public offering in August — investors looking to turn a profit betting against the company do come with the territory.
In that interview, though, Farner sent a shot across the bow to the company's short sellers, noting Rocket's long history of profitability, which last year was more than $9 billion.
"My advice is this is not a stock that you want to be short in," Farner said on CNBC. "You might want to rethink your position if that's how you're playing it. We've got a great track record and a lot of exciting things we're working on."
Representatives for Rocket did not immediately respond to a request seeking comment on the recent stock activity.
Gilbert and other close executives control nearly 95 percent of the company.
Alongside that strong earnings report last week, Rocket also announced a $1.11 per-share dividend payable later this month to all Class A shareholders. That dividend could serve as a mechanism for the company to clear out the short sellers with an interest in Rocket, as regulations by the U.S. Securities and Exchange Commission mandate that if a company pays a dividend, those who hold a short position must then pay the dividend to the company, as opposed to receiving it.
Rocket currently has more than 43 million shares sold short.
GameStop in late January became the initial "meme" stock as retail investors and others sought to push back against the short holders of the video game retailer. The company has struggled with profitability for years as the sale of video games shifted away from brick-and-mortar stores and toward online commerce.
The level of activity and surge in stock price on Tuesday definitely falls into the same category as seen earlier this year with GameStop, said David Sowerby, managing director and portfolio manager for wealth management firm Ancora Advisors LLC in Bloomfield Hills.
Sowerby said the activity shows more "trading versus investing," likely done by a combination of short sellers exiting their positions, retail buyers gobbling up shares on the upswing and high-frequency hedge fund trading.
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Shares of Gilbert's Rocket Companies surge as Reddit users take on short sellers - Crain's Detroit Business
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