Detroit's Mortgage Giants Rocket Higher Amid Latest WallStreetBets-Sparked Short Squeeze

Shares of Detroit mortgage giants caught fire on Tuesday led by a 70% gain from Rocket Companies Inc RKT.

In addition to the surge by Rocket, UWM Holdings Corp UWMC shares were up 20% in sympathy as the Reddit WallStreetBets traders driving the recent short squeeze in GameStop Corp. GME shifted their attention to Rocket.

Also on Tuesday, UWM Holdings announced it has been included in the preliminary list of IPO additions for the Russell 1000 and Russell 3000 indexes.

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Why It’s Important: Last week, Rocket reported 162% revenue growth and 350% net income growth in the fourth quarter, exceeding analyst expectations. Rocket shares initially popped 9.8% last Friday following the impressive numbers. Rocket gained 11.2% on Monday and then another 50% on Tuesday as the buying accelerated.

Given there’s no new news from the company since Thursday, this week’s surge in share price is likely due to a short squeeze.

Rocket Companies, which is the parent company of Rocket Mortgage and Quicken Loans, has been one of the top 20 trending stocks on WallStreetBets going back to at least Feb. 16.

Shorts Squeezed: Rocket is one of the most aggressively shorted stocks in the market, according to S3 Partners. Rocket currently has about $1.2 billion in short interest, or about 45.8% of its float. WallStreetBets users and other groups of online retail traders have been systematically targeting specific stocks that have high short interest in an attempt to trigger short squeezes.

S3 analyst Ihor Dusaniwsky said Tuesday that the huge surge in Rocket shares may be forcing short sellers out of their positions.

“RKT is one of our top short squeeze candidates with short sellers down -$484 million in year-to-date net-of-financing mark-to-market losses, -57% for the year, including down -$256 million on today’s +21% move,” Dusaniwsky said on Tuesday morning.

GameStop shares skyrocketed from under $18 to as high as $483 in January thanks to a retail-fueled short squeeze. In February, shares of Canadian cannabis producer Tilray Inc TLRY jumped from under $20 to as high as $67 in a matter of days when WallStreetBets turned their attention to cannabis stocks.

Benzinga’s Take: Other recent social media “meme” stocks like GameStop and AMC Entertainment Holdings Inc AMC have businesses that are struggling for long-term survival, but Rocket’s underlying mortgage business is thriving.

Still, short squeezes are typically short-term market events, and GameStop, AMC, Tilray and other WallStreetBets favorites in January and February are now trading significantly off their highs.

Rocket trades around $41.68 a share at publication time, while UWM Holdings trades around $9.25.