RKLB stock suffers a brutal reversal as a bullish pattern begins to take shape

Rocket Lab stock price has pulled back from its all-time high as the recent rally takes a breather. RKLB dropped to $104 on Tuesday, down by 31% from its highest point this year. This pullback has led to a $27 billion wipeout as its market cap has fallen from $87 billion to $60 billion today. So, is it safe to buy the dip or sell the rip?

Rocket Lab stock has slipped amid profit-taking

RKLB has retreated into a technical bear market as investors dump space companies following a remarkable bull run earlier this year. Planet Labs has slumped 45% from its year-to-date high. 

Similarly, Intuitive Machines, Redwire, and Virgin Galactic have all plunged more than 50% from their highs this year. Before the SpaceX IPO, these were all some of the best-performing companies, with the Procure Space ETF (UFO) surging from $15 in April 2024 to a high of $68.3.

Fundamentally, Rocket Lab’s business is doing well as the number of launches and revenue backlog jump. Its Electron vehicle has already launched 261 satellites, with over 1,700 satellites being in orbit.

RKLB’s revenue growth is continuing

The recent financial results revealed that Rocket Lab’s revenue jumped by 63% in the first quarter to $200.3 million. These are strong numbers considering that the company made just $61 million in the whole of 2021.

Its gross margin expanded to 38.2%, while the company recorded 31 new Electron and HASTE contracts during the quarter. Its Neutron product contracts also continued rising during the quarter.

This growth is expected to continue growing in the next few years as demand for commercial and government launches rise. The average estimate is that its revenue will come in at $231 million in the second quarter, up by 60% this year.

Rocket Lab’s annual revenue is expected to jump by 51% this year to $914 million, followed by $1.29 billion next year. If this trend continues, it may get to $5 billion by 2030, with Neutron being the biggest catalyst. 

Neutron has a payload capacity of 13,000 kilograms and has a reusability configuration. It has a bigger payload capacity than Electron, which has a payload capacity of 300 kilograms to sun-synchronous orbit (SSO) and 320 kilograms to low Earth orbit (LEO).

Still, Rocket Lab stock has some potential risks ahead. One of these risks is its valuation and dilution. It has continued to increase the number of outstanding shares in the past few years, moving from 460 million earlier last year to 575 million today. It used this approach to raise $2 billion last year.

At the same time, there are signs that the company is highly overvalued, with the forward price-to-sales ratio rising to 70, much higher than other companies. Still, analysts predict that it has some more upside, with KeyCorp targeting a rise to $135 and Stifel boosting its target to $132.

RKLB stock price technical analysis

Rocket Lab stock chart | Source: TradingView

Rocket Lab stock has pulled back by 30% from the year-to-date high. This retreat is mostly because of a situation known as buying the rumor and selling the news. This is where investors bought space stocks ahead of the SpaceX IPO and are now selling since it has happened.

RKLB stock has dropped below the 25-day Exponential Moving Average (EMA). At the same time, the Average Directional Index (ADX) has dropped from 43 to 26, a sign that the downtrend is losing momentum. 

The stock has also formed a rising broadening wedge, a common bullish continuation sign in technical analysis. Therefore, there are two potential scenarios going forward. 

The stock may continue falling, potentially to the lower side of the wedge pattern at $80 and then rebound. On the other hand, a drop below the lower side of the wedge will point to further downside, potentially to $50.