The After-the-SPAC Drop In UWM Holdings Stock Is Almost Inexplicable

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There may come a time when the once-hyped real estate loan originator UWM Holdings (NYSE:UWMC) will have its day in the sun again. Until then, we’ll have to wrap our heads around the surprisingly low price of UWMC stock.

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For six years running, UWM Holdings has been (according to the company, at least) America’s number-one wholesale mortgage lender. The company’s most notable rival is Rocket Mortgage, which is part of Rocket Companies (NYSE:RKT).

On Sept. 23, 2020, UWM Holdings announced that it would go public through a reverse merger with special purpose acquisition company (SPAC) Gores Holdings IV. This deal, valued at a whopping $16.1 billion, was the biggest SPAC deal ever at that time.

And yet, somehow, UWMC (previously GHIV) stock has managed to drop below its pre-merger-announcement price. There could be a rare buying opportunity here, so stick around as we delve deeper into this underappreciated housing-market disruptor.

A Closer Look at UWMC Stock

Prior to the disclosure of the reverse merger, the shares were trading close to the $10 level. This is typical among SPAC stocks in their early stages as the units — generally at a per unit purchase price of $10 — are composed of one share of common stock and a fraction of a warrant to purchase a share of that stock.

Now, you might expect that UWMC/GHIV stock would have taken an immediate rocket ride after the merger deal’s announcement. Yet, that’s not exactly what happened.

The melt-up in the share price did happen, but not until December 2020. Finally, the stock ran up to a 52-week high of $14.38 on Dec. 28.

You might have seen post-deal SPAC stocks return to the $10 level after the initial burst of enthusiasm fades. That’s perfectly understandable.

However, UWMC stock actually went significantly below $10. In fact, at the close of the markets on April 16, 2021, the stock settled at $7.49.

That’s brutal for folks who bought and held the stock, expecting long-term growth. So, should current and prospective investors conclude that there’s something wrong with the company?

Delivering Results and Dividends

As far as I can tell, UWM Holdings is doing just fine. The most recently released financial data on the company comes from UWM Holdings’ report on its fourth-quarter and full-year-2020 results, which were quite impressive.

Here’s a quick recap of the Q4 data:

  • Originations of $54.7 billion in loan volume, up 71% year-over-year and a quarterly record for the company
  • Total gain margin of 305 basis points (bps), easily beating the 110 bps recorded during Q4 2019
  • Net income of $1.37 billion, a huge improvement over the $148.9 million in net income posted during Q4 2019

As for full-year 2020, UWM Holdings’ originations production came to $182.5 billion. That’s a company record, as well as a 69% increase over the company’s prior record production for 2019 of $107.8 billion.

Plus, UWM Holdings remains a generous dividend payer. Currently, the forward annual dividend yield for UWMC stock is 5.34%, which ought to appeal to income-focused investors.

SPAC Fatigue

With all of that positive data in mind, it’s tough to make sense of the persistently low price in UWM Holdings shares.

It’s not as if the housing market’s failing. To quote InvestorPlace contributor Larry Ramer, the housing boom in 2021 is so strong “that, in January, the national S&P CoreLogic Case-Shiller Index increased by the highest amount year-over-year since 2006.”

Could competition from rival Rocket Mortgage be the problem? Not likely. As I learned from InvestorPlace contributor Chris Markoch, UWM Holdings CEO Mat Ishbia asserts that fewer than 500 out of 12,000 brokers are continuing to partner with Rocket Mortgage.

I won’t get away with just throwing my hands up and admitting that I don’t know why UWMC stock is still dirt cheap. So, I’ll go ahead and coin a phrase now: SPAC fatigue.

It’s possible that the market’s love affair with SPACs is fading. Trends come and go, and perhaps the market is unfairly punishing UWM Holdings, which, after all, was hyped as being part of the biggest SPAC deal ever.

The Bottom Line

So, there’s my best guess as to why UWMC stock is probably trading below its fair value.

You might agree with me that there’s an under-recognized bargain here. If so, feel free to express your contrarianism through a long position in UWM Holdings.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.

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