Rocket Lab (NASDAQ: RKLB) stock price has suffered a major reversal in the past few weeks, moving from the year-to-date high of $151 on May 27 to $84. This retreat continued even after the company landed a new NASA contract last week. So, is it safe to buy the dip or sell the rip?
Rocket Lab stock under pressure despite NASA deal
RKLB share price has dropped sharply in the past few weeks as investors booked profits following its spectacular rally ahead of the SpaceX IPO. It jumped to a record high of $151, up by 3,700% from its lowest level in 2014, with its market capitalization peaking at $82 billion.
The ongoing Rocket Lab stock retreat has coincided with that of other companies in the space industry. SpaceX itself has plunged by over 30% from its highest point after its IPO. Also, other top players in the space industry, like Planet Labs and Intuitive Machines, have also plunged recently.
The sell-off intensified recently after the company entered the blue-chip index, a move that forced ETF and mutual fund operators to buy it. It is common for stocks to pop after an ETF inclusion news and then retreat when it eventually happens.
Most importantly, demand for Rocket Labs’ solutions jumped after NASA selected the company for the Polarized Submillimeter Ice-cloud Radiometer (PolSIR) and Total and Spectral Solar Irradiance Sensor-2 (TSIS-2) missions. The deal is worth $300 million.
Rocket Lab’s growth is continuing, but valuation risks remain
The most recent financial results showed that Rocket Labs’ business is firing on all cylinders with the number of launches continuing growing. It made a record $200 million revenue, up by 63.5% from the same period last year. Also, the company’s revenue backlog surged to over $2.2 billion or 70+ missions.
While most of these orders are for its Electron product, the company is seeing more demand for its HASTE and Neutron projects. It secured 5 Neutron launches in the last quarter, with the manifest filling to end of the decade.
Analysts predict that Rocket Lab’s revenue growth will continue in the foreseeable future. The annual revenue is expected to be $915 million, up by 52% YoY. It is expected to grow by 41% next year to $1.29 billion.
Still, there are concerns about the company’s valuation, which has become extremely stretched in the past few months. It now trades with a forward price-to-sales ratio of 53, which is a massive number. This means that it will need to continue growing its revenues and boosting its profit metrics in the long term.
READ MORE: Here’s why Rocket Lab stock is ripe for a strong comeback
RKLB stock price technical analysis
Rocket Lab stock chart | Source: TradingView
The daily chart shows that the RKLB share price has dived in the past few months, moving from a high of $151 to $84 today. Its current price is notable as it coincides with the ascending trendline that connects the lowest swings since November last year.
The stock remains above the 200-day Exponential Moving Average (EMA), a sign that all hope is not lost. It has also settled along the Strong, Pivot, Reverse level of the Murrey Math Lines tool.
Therefore, there is a likelihood that the Rocket Lab stock price will bounce back and retest the Major S&R level of $100 as investors buy the dip. This view will become invalid if the stock drops below the Strong, Pivot, Reverse level of the Murrey Math Lines at $75.
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