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Friday, September 29, 2023

Rocket Lab USA: What's Next after Recent Swings

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One could say Rocket Lab USA (RKLB) stock lived up to its name earlier this month. The space launch and satellite manufacturing company saw its shares zoom from around $10, to as much as $21.34 per share, in a matter of days.

The reason? Solid quarterly results, along with news of a major contract win. Following both positive developments however, investors have decided to “sell on the news.”

As a result, the stock has dipped back to around $15.50 per share. So, following its pullback, is now the time to buy? (See RKLB stock charts on TipRanks)

I’m staying bearish until it moves back to lower price levels.

Analysts, Investors Excited about RKLB Stock

Even with recent profit-taking, retail excitement remains elevated with Rocket Lab USA shares. That’s clear from the high level of discussion about it on platforms like Reddit’s r/WallStreetBets.

Make no mistake however, there’s more on the side of RKLB stock than just “meme stock” popularity. The sell-side in general has shown enthusiasm for it as well. For example, Edison Yu of Deutsche Bank recently gave shares a Buy rating, and a $18 price target.

The rationale for his bullishness? Yu sees it as the “highest quality” name among the space stocks that have recently gone public.

The other analyst to give it a Buy rating, Canaccord’s Austin Moeller, is even more bullish. Giving it a $30 per share price target, Moeller believes it’s second only to Elon Musk’s SpaceX among commercial space launch operators.

Yet despite the bullishness surrounding it, buying in today may not be the way to go. Mainly, because of the high likelihood shares fall further in price, before they climb back to recent highs, and beyond.

Reasons for Concern

RKLB stock may have a lot in its corner long-term. But two near-term factors may mean more declines lie ahead. 

First, an upcoming lockup expiration. Yu himself mentioned this as a key concern in his research note. Once details about planned selling by private investors in this former SPAC (special purpose acquisition company) become known later this month (via an S-1 filing), investors could react negatively, sending shares lower even before the lockup ends.

Second, the stock’s premium valuation. Its 2021 projected revenue of between $50 million and $54 million hardly justifies this stock’s current trading levels.

Granted, with the high-growth projections laid out in its investor presentation, it makes sense why investors have been willing to pay up for it. Demand growth for both its launch and satellite businesses could mean its top line soars more than 29-fold over the next six years, to $1.57 billion.

Yet that may not be enough to counter factors like Federal Reserve tapering, and possible interest rate increases, which could lower the appeal of growth stocks in the months ahead.

Downward pressure from either of these two issues could send shares back to their SPAC offering price ($10 per share). Or perhaps, even lower.

What Analysts are Saying about RKLB Stock

According to TipRanks, RKLB stock has a consensus rating of Moderate Buy. Out of three analyst ratings, two rate it a Buy, while one analyst rates it a Hold.

The average RKLB price target is $22 per share, implying 48.6% upside from today’s prices. Analyst price targets range from a low of $18 per share, to a high of $30 per share.

Bottom Line

Until SpaceX goes public, Rocket Lab USA may be one of the best options for investors looking for exposure to the fast-growing space sector.

However as traders take profit, concerns continue to mount regarding upcoming insider selling, and possible downward pressure on growth stocks overall.

The best move for investors may be to sit things out, until RKLB stock makes a further descent back to earth.

Disclosure: At the time of publication, Thomas Niel did not have a position in any of the securities mentioned in this article.

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The post Rocket Lab USA: What's Next after Recent Swings appeared first on TipRanks Financial Blog.

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