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A Look into $UWMC Tells Us it's Undervalued – A Company with Strong Financials and Operations

UWMC holds a strong reputation in the mortgage lender business which in turn translates to their large market position in the wholesale channel. With their continued growth from the market outlook, I expect to continue to see strong financials aided by their operational efficiency and their strong IT infrastructure which will help to drive their market share higher.

Company Overview

United Wholesale Mortgage Holdings Corporation (NASDAQ: UWMC) is a wholesale lender. The company underwrites and provides closing documentation for residential mortgage loans originated by independent mortgage brokers, correspondents, small banks and local credit unions. The company offers its broker partners direct access to dedicated in-house mortgage advisors as well as their own teams of underwriters and closers. It also provides training, technology, marketing support and more to help its entrepreneurial partners.

For the last 6 years included FY2020, they have been the largest wholesale mortgage lender in the U.S by closed loan volume, with approximately 34% market share of the wholesale channel.

Strategy: Operating solely as a Wholesale Mortgage Lender and thereby avoiding conflict with partners, independent mortgage advisors and their direct relationship with borrowers. By not competing for the borrower connection and relationship, they believe they’re able to generate significantly higher loyalty and satisfaction from clients.

Market Opportunity

  • Residential mortgage loan originations continuing to grow
    • Federal Reserve reports residential mortgages to represent the largest segment of the U.S consumer finance market
    • In 2020 annual residential mortgage origination volume reached $3.7T and an average of $2.2T over the last 5 years
    • Mortgage Bankers Association forecasts residential mortgage debt to increase to $12.4T by the end of 2022
      • An increase from FY2020 value of $11.1T
    • Loan origination volumes are continuing to shift to non-bank originators
      • Since 2008, non-bank originators have grown from 32% of the loan origination volume to 79% in 2020
      • Traditional banks have since reduced their footprint in mortgage origination
      • Non-bank originators and servicers have been able to meaningfully grow market share
    • Steady home appreciation driving higher mortgage purchase volume and increased residential mortgage loan originations for purchases

Investment Thesis: Operational Excellence and Strong Revenues

By focusing solely on the wholesale channel, it provides UWMC with a differentiated, client-centric business model that allows for scaled, efficient and centralized processes and the ability to focus on high-quality loans. FY2020, UWMC closed approx. 561,000 loans, with an average submission to clear to close turn times of 17 days. With an average of 9.8 loans per month per production team member, UWMC outperforms the industry average of 3.5. At this rate, UWMC is able to capture a bigger market share in the growing industry, and in turn, generate attractive financial figures and returns for shareholders.

Revenue: In the 4QFY2020 alone, UWMC reported a net income of $1.37B- nearly half of their total net income in 2020. This was approx. a 700% increase YoY (2019-2020) and is expected to continue to rise given the industry outlook and opportunity. UWMC has a clear advantage over its competitors when it comes to operational strength, balance sheet and their liquidity and further enforces their position if there were to be drastic changes in the market that would add to uncertainty (as discussed in Risks)

Investment Thesis II: Strong IT Infrastructure

UWMC’s own technology platforms and exclusively licensed technology allows them to support clients and borrower to provide a β€œbest-in-class client experience.” Their variety of full-service technology platforms is offered to independent mortgage advisors and helps to deliver closely managed end-to-end experience for the borrower from origination through closing. Because of this, their technology platforms give them a competitive edge, helps to drive customer retention and offer the ability to efficiently and quickly achieve closing on loan originations. It is primarily due to their technology that they are able to achieve the faster-than-industry average for closing loans. As well, the technology helps to drive brand recognition and brand loyalty because of their personalized marketing tool offered to the independent mortgage advisors.


Their financial performance is directly affected by, and subject to substantial volatility from changes in prevailing interest rates. A rise in interest rates and increased inflation expectations in the U.S could lead to stagflation in the coming years. As interest rates rise, refinancing generally becomes a smaller portion of the market as fewer consumers are interested in refinancing their mortgages (refinancing makes up 75% of their mortgage volume). In the mortgage loan business, higher interest rates may also reduce the demand for purchase mortgages as homeownership becomes more expensive. These could affect their financial position and the results of their operations.

Their financial performance is highly dependent on the U.S residential real estate market conditions. The U.S residential real estate industry is seasonal and highly affected by changes in general economic conditions. Economic conditions such as interest rates, slowed economic growth, unemployment numbers and wages affecting borrower’s income and ability to make loan payments directly affect UWMC’s financial position. Negative market conditions can lead to a decrease in loan originations and will result in lower revenues- or lead to an increase in loan delinquencies this increasing UWMC’s expenses for loans serviced.


Using a comps analysis, I found 6 companies of competition to UWM Holdings. Given their recent IPO, I found it hard to estimate revenue numbers and use EV/Revenue to further value the company.

P/S Ratio: Using a P/S multiple of 4.27, I arrived at a fair value of $15.23 representing a 50.88% upside.

P/E Ratio: With the P/E ratio, I arrived at a fair value of $28.27 representing a 179% implied upside.

Using a 50/50 weighting system, I arrive at an estimated fair value of $21.75 which would imply approx. 115% upside.

Final Thoughts

Given the market opportunity, strong financials and the strong IT infrastructure UWMC brings, I think the company is positioned for solid growth in the coming years. By solely focusing on the wholesale channel, the company offers a competitive edge and presents operational efficiency in generating high-quality loans while also meeting the growing demand. Going forward, I hope to see increased revenues on their ER and also a changing social sentiment to help drive this stock forward (Reddit sentiment take from here)




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