The first half of May was anything but good for UWM Holdings (NYSE:UWMC). Better known as United Wholesale Mortgage (UWM), the wholesale lender of residential mortgages saw UWMC stock fall almost 25% earlier this month. Since then, it’s gained back all of its losses and then some. 

Up over 40% since May 11, UWMC stock has considerable momentum. Can it keep it going, blow through $10, and move even higher? I think it can.

UWMC Stock Valuation

The standout number from UWM’s 2021 first-quarter results released on May 10 was the 14-cent miss in earnings. The $80 million miss on the top line isn’t anything to stew about. The $1.19 billion in revenue was less than 10% off the analyst number. Any number of things could account for the discrepancy. 

UWM did boost margins and loan volumes They also predict margin expansion expected in the second quarter, despite mortgage originators expecting to earn less per loan going forward. In UWM’s case, it projects its profit per loan in Q2 2021 to drop by as much as 144 basis points to 0.75%. 

The Motley Fool’s  Brent Nyitray believes a price war is coming, as UWM is looking to capture market share. 

Even with this drop in profit, analysts expect UWM to make 68 cents in 2021 and 86 cents in 2022. Those predictions are down significantly from a month ago, when analysts projected a 2021 profit of $1.23 a share and $1.21 in 2022. 

Increasing Market Share

UWMC stock is still trading at about 13x and 10.2x 2021 and 2022 annual earnings based on the lower projections. Further, of the six analysts covering the stock, five rate it a buy and one rates it a hold. There are no sell calls.

In its Q1 2021 conference call, CEO Mat Ishbia stated that UWM would look at potential acquisitions to grow market share. Ultimately, though, he felt the company could achieve the same goal by investing in its platform, using strategies like better pricing or attracting more brokers. 

In 2020, UWM had a 34% market share in wholesale mortgages. It intends to build that to 50% by 2025 0r 2026. Furthermore, the company wants mortgage brokers to account for one out of every three mortgages it originates. The number is currently around one out of every five. 

So, yes, Nyitray’s assessment of the situation makes a lot of sense. 

Where to From Here for UWMC Stock?

If you bought into the Gores Holdings IV special purpose acquisition company (SPAC), which merged with UWM, you’re hoping that I’m right about UWMC stock blasting through $10. If we get to August — one year since the SPAC went public — and UWMC stock is still trading below $10, the SPAC’s investors won’t be thrilled.

That said, if you are considering a pre-merger SPAC, you might be wiser to invest in a de-SPAC such as UWM instead. The company’s been able to thrive in what is traditionally a challenging industry. Founded in 1986, not only did it originate $182.5 billion in residential mortgages in 2020 — gaining 34% wholesale channel market share in the process — but UWM also originated 4.5% of all residential mortgages in the U.S. in 2020.

This isn’t some small-town company from Pontiac, Michigan. UWM is playing an important part in the housing industry as it continues to grow. 

50% Market Share by 2026

Let’s assume UWM gets to 50% market share in the wholesale channel by the end of 2026. Based on its origination number, the total wholesale mortgage market in 2020 would be $537 billion.

Assuming it grows 5% each year for the next five, at the end of 2026, the total wholesale channel would be an estimated $685 billion. UWM’s share would be $342.5 billion, 88% higher than what it is today. 

In 2020, UWM had $3.38 billion in net income. It closed 561,000 loans last year. That’s a profit of $6,025 per loan. Based on an average mortgage of $325,000 and their expected market share, the company should close 1.05 million loans in 2026. That would generate a profit of $6.35 billion or about $3.96 a share on 1.61 billion shares outstanding. 

So, the question you have to ask yourself is: what are the odds UWM achieves everything in the above paragraph? If you think it’s doable in five years, $10 will seem like an absolute steal for UWMC stock by 2026.

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.