United wholesale mortgage (NYSE:UWMC) appears to be on the way to the breakthrough expected by its shareholders. As of this writing, UWMC stock is up 29% since May 7. Shares rose after the company reported bullish financial results in mid-May.
If the trend continues, it seems likely that UWMC exceed the $ 10 mark. If nothing else it would be a symbolic victory for the stock. For those unfamiliar with United Wholesale, it came to market through a Special Purpose Acquisition Company (SPAC). Since most PSPC stocks are initially priced at $ 10, UWMC stocks have been trading at a discount for some time.
United Wholesale shares are trading at a discount with robust growth projections. This is a bullish combination. Analysts give UWMC stock a buy rating with a consensus price target of $ 10.20.
If you can sense a “but” coming, you are right. In this case, it is because despite the still bullish long-term outlook, United Wholesale operates in a cyclical activity. The wholesale broker concept relies to some extent on the volatility of volumes and rates. And at the moment, neither one is definitely in favor of the company.
Two sides of a coin
The bullish and bearish cases for United Wholesale are two sides of the coin. As the mortgage market heated up in 2020, inventories were high and interest rates generally fluctuated in favor of the consumer. This justifies using a wholesale broker as well as anyone can.
When there is a large inventory of available homes and a dizzying rate of loan / rate options. A mortgage broker (essentially an intermediary) is worth his commission.
A direct-to-consumer model as convenient as advertisements claim limits the consumer’s options. However, this may not be such a big issue for the rest of the year. Interest rates are expected to remain stable and stocks have tightened considerably. This makes the speed of gasoline. That direct-to-consumer selling really delivers this speed may be more psychological than real, but sometimes that’s all that matters.
On the other hand, on June 30, 2021, the federal moratorium on seizures and evictions expires. Dan Kruse, President and CEO of Century 21 Affiliated don’t believe it will be a wave like the one that happened between 2005 and 2010, but a tight market may benefit from some quality listings as homeowners look to get out of their existing mortgages to avoid foreclosure.
What about this commitment?
In March, UWM CEO Mat Ishbia announced that wholesale brokers who work with Rocket companies (NYSE:RKT) or Fairway would no longer be able to work with UWM. In a previous article, I referred to Ishbia’s claims that only 500 out of 12,000 brokers would continue to partner with Rocket Mortgage. It turns out that the actual number is slightly higher.
In an interview with the Detroit Free Press, Ishbia said that the the actual number was around 1600. This was broken down into 600 brokers who refused to sign the pledge and 1,000 who did not respond at all.
Whether the number of provocative brokers is 4% (500 out of 12,000) or 13% (1,600 out of 12,000) does not matter. Either number shows that UWMC obtains a high degree of loyalty from its broker network. Isbia pointed to the company’s 17,000 new loans in April compared to February as proof that the “all-in” initiative as he called it was working.
Where is it? At least one broker has sued UWM on charges that the company’s actions violate antitrust laws in what could become a class action lawsuit. An ongoing litigation is usually an anchor on an action.
The UWMC stock appears to have a ceiling and a floor
Isbia may be right about the success of her promise of loyalty. I still see this as a strange way for a business to respond to its competition. If you have a superior product, the market will realize it. But facts are facts. Let’s call it a win for United Wholesale Mortgage.
And the company’s action is sparking debate on industry practices. This can ultimately be another catalyst for the stock.
Just know what you are buying. UWMC stock obtained tied in stock trading meme. And he may also have been a victim of Spas weariness. The first is the wrong reason to buy; the latter is the wrong reason to sell. I like the long term case for UWMC as a valuable stock. The stock may have bottomed out. But don’t expect it to “skyrocket” much higher than analysts expect.
As of publication date, Chris Markoch did not hold (directly or indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, submitted to InvestorPlace.com Publication guidelines.
Chris Markoch is a freelance financial writer who has covered the market for seven years. He has been writing for Investor Place since 2019.