Rocket Lab stock price has slipped in the past few weeks as investors book profits following the spectacular rally that happened before the SpaceX IPO. RKLB dropped to the key support level of $100, even after it entered the exclusive Nasdaq 100 Index. Still, there are some reasons why it will eventually rebound.
Rocket Lab stock technicals point to a rebound
RKLB stock has retreated sharply this month, moving from a record high of $151 to slightly below $100 on Monday. This retreat happened on the day that it entered the Nasdaq 100 Index, a move that has forced ETFs tracking it to buy.
Technicals suggest that there is hope that the Rocket Lab shares will bounce back despite the major challenges. For one, it has dropped and found support at the 100-day weighted moving average (WMA).
Its lowest level this week is also along the crucial support of $100, the highest swing in January and the upper side of the cup-and-handle pattern. As such, there are signs that it has formed a break-and-retest pattern, which often leads to a continuation.
The Average Directional Index (ADX) has dropped from 43 to the current 25 and is still pointing downwards. That is a sign that the stock’s downward trend is losing momentum.
There are signs that the stock has formed a falling wedge pattern, which normally leads to a bullish breakout. Therefore, there is a likelihood that it will soon bounce back in the coming days or weeks, potentially to the year-to-date high of $151.
RKLB stock chart | Source: TradingView
Rocket Lab’s business is firing on all cylinders
The other bullish catalyst for Rocket Lab is that its business is firing on all cylinders as demand continues rising. Electron, its small orbital launch vehicle continues seeing strong demand from governments and companies.
Its Hypersonic Accelerator Suborbital Test Electron (HASTE), its variant of Electron, is also seeing strong demand from the US Department of Defense as it accelerates hypersonic missile developments.
Most importantly, the company continues to take orders for Neutron, its medium-lift launch vehicle that will carry more payloads.
The most recent financial results showed that it booked 31 missions in the first quarter, with the management seeing an inflection point of across its orbital and suborbital launches. This is important as the company received a 20-launch order valued at $190 million from the DoD. It has also become a major name in the Golden Dome project.
READ MORE: RKLB stock suffers a brutal reversal as a bullish pattern begins to take shape
Analysts expect that Rocket Lab’s revenue growth has more room to run. Yahoo Finance data shows that the annual revenue will jump by 52% this year to $915 million. It will then grow by 41% next year to $1.29 billion. If this trend continues, it will hit the $5 billion milestone in the coming years.
Rocket Lab’s other catalyst is that it plans to launch Neutron later this year, with its deployment expected to increase gradually over time. A combination of Neutron, Electron, and Haste will lead to robust revenue growth over time.
By launching Neutron, the company will now start to focus on boosting its profitability.
Potential risks to the RKLB stock bullish thesis
Still, there are some risks to the thesis. The first one is that it is common for stocks to retreat after entering a major index like the Nasdaq 100. A good example of this is Robinhood, which has dropped sharply since its entry.
The other risk is that it may enter the distribution and markdown phases of the Wyckoff Theory. These phases are usually characterized by sharp declines in prices.
Further, Rocket Lab is not a cheap company as it trades at a forward price-to-sales ratio of 67, much higher than most companies. As such, there is a risk that it may go through a valuation reset.
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