Rocket Companies Inc. shares have lagged the S&P 500 in 2021, generating a year-to-date total return loss of 28.5 percent.
Earnings
A price-to-earnings ratio (PE) is one of the most basic fundamental metrics for gauging a stock’s value. The lower the PE, the higher the value.Growth
Looking ahead to the next four quarters, the S&P 500’s forward PE ratio looks much more reasonable at just 20.8. Rocket’s forward earnings multiple of 10.0 is still less than half the S&P 500’s, making Rocket look undervalued.Rocket’s forward PE ratio is also more than 30 percent lower than the average multiple of its financial sector peers, which are averaging a 17.7 forward earnings multiple.
Yet when it comes to evaluating a stock, earnings aren’t everything.
The growth rate is also critical for companies that are rapidly building their bottom lines. The price-to-earnings-to-growth ratio (PEG) is a good way to incorporate growth rates into the evaluation process.
The S&P 500’s overall PEG is currently about 1.0; Rocket doesn’t have a PEG because it is not expected to grow earnings in the next four quarters.
Price-to-sales ratio is another important valuation metric, particularly for unprofitable companies and growth stocks. The S&P 500’s PS ratio is currently 3.11, well above its long-term average of 1.63. Rocket’s PS ratio is 2.02, significantly lower than the S&P 500 average as a whole. Rocket’s PS ratio is also up 377.5 percent over the last past year, suggesting the stock is priced at the high end of its historical valuation range.
