• If you are wondering whether Rocket Companies at around US$14.15 is offering fair value or not, you are in the right place to make sense of the signals the market is sending.
• The stock has seen mixed returns, with a 3.2% decline over the last week and a 2.5% decline over the past month, alongside a 28.8% decline year to date, a 21.5% gain over the last year, and an 82.8% gain over three years.
• Recent attention on Rocket Companies has focused on its position within the broader housing finance ecosystem and changing expectations around mortgage demand. This has kept investors watching the stock closely. Commentary has also highlighted how sentiment toward interest rate trends and housing affordability is feeding into how investors think about Rocket Companies' long term prospects.
• Based on Simply Wall St's checks, Rocket Companies currently has a value score of 2 out of 6. The rest of this article will walk through what different valuation methods say about that score and will point to an even better way to think about valuation at the end.

Rocket Companies scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Rocket Companies Excess Returns Analysis

The Excess Returns model looks at how efficiently Rocket Companies turns shareholder equity into profits, after accounting for the cost of that equity. In simple terms, it asks whether each dollar of equity is generating more earnings than investors require as compensation for risk.

For Rocket Companies, the model uses a Book Value of $8.13 per share and a Stable EPS of $1.00 per share, based on weighted future Return on Equity estimates from 5 analysts. The implied Cost of Equity is $0.80 per share, which leads to an Excess Return of $0.20 per share. That excess is built on an Average Return on Equity of 10.81% and a Stable Book Value estimate of $9.27 per share, sourced from 6 analysts.

By projecting these excess returns into the future and discounting them, the model arrives at an intrinsic value of about $13.13 per share. Compared with the current share price of around $14.15, the Excess Returns valuation suggests the stock is about 7.8% overvalued, which is close to fair value territory.

Result: ABOUT RIGHT

Rocket Companies is fairly valued according to our Excess Returns, but this can change at a moment's notice. Track the value in your watchlist or portfolio and be alerted on when to act.

Approach 2: Rocket Companies Price vs Sales

For profitable companies with meaningful revenue, the P/S ratio can be a useful way to compare what investors are paying for each dollar of sales, especially when earnings are volatile or less informative.

Growth expectations and risk usually shape what looks like a reasonable P/S multiple, with higher expected growth or lower perceived risk often lining up with higher typical ratios, and the opposite also being true. Rocket Companies currently trades on a P/S ratio of 5.66x, compared with the Diversified Financial industry average of 2.23x and a peer average of 1.90x.

Simply Wall St also calculates a Fair Ratio for Rocket Companies of 6.06x. This is a proprietary estimate of what the P/S multiple could be given factors such as the company’s earnings profile, industry, profit margins, market cap and specific risks. This makes it more tailored than a simple comparison against peers or the broad industry, which treats very different businesses as if they should all trade on the same multiple. With the actual P/S of 5.66x sitting below the Fair Ratio of 6.06x by around 0.40x, the stock screens as slightly undervalued on this measure.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your Rocket Companies Narrative

Earlier it was mentioned that there is an even better way to understand valuation. Narratives are introduced here as your way to attach a clear story about Rocket Companies to hard numbers like fair value, and estimates for future revenue, earnings and margins. This means the company’s story, your forecast and your fair value are all linked in one place on Simply Wall St’s Community page. Narratives update automatically when new news or earnings arrive and let you compare your view of fair value to the current share price to decide whether Rocket Companies looks attractive or not. For example, one investor on the platform currently sees fair value at about US$16.50, and another sees it closer to US$40.00.

Do you think there's more to the story for Rocket Companies? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.