Did You Buy Rocket Lab Yet?
Here's what's happened since we last wrote you and how we're playing the stock now.
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One of my core holdings among smaller stocks is in need of an update.
I last wrote to you about Rocket Lab USA RKLB on July 1, so it was just 11 days ago. At the time of publication, the last sale was $4.57. As I start writing this missive, the last sale is $5.60. So, in that short period of time, the shares have enjoyed a nice pop of 22.5%.
On July 1, the shares were still dealing with having been rejected at the 38.2% Fibonacci retracement level of the July through April selloff:
We see now that RKLB has retaken that level successfully and is headed for a showdown with the "half-way back point at $5.75. Relative Strength is very solid, almost bordering on being technically overbought. That, however, is not the warning sign that it used to be.
We also see that the stock's daily Moving Average Convergence Divergence (MACD) is postured quite nicely. Much more bullish looking than it was nearly two weeks ago.
I told readers at that time that RKLB was not a top ten or fifteen holding for me. That much is still true, but due to price appreciation, this stock is now my 18th most heavily weighted long position for whatever that is worth. I currently have 33 long positions.
Earnings & Fundamentals
We do not expect to hear from Rocket Lab about quarterly earnings until early August. Wall Street is looking for a GAAP loss of $0.10 per share on revenue of $107 million. That would measure against a similar loss of $0.10 per share for the year-ago comparison, but on revenue growth of 73%.
As mentioned the last time we spoke, operating and free cash flows remain negative. Over the full year ending with the most recently reported (March) quarter, the company generated operating cash flow of -$76.1M and free cash flow of -$137.3M. Problem? Not yet, because Rocket Lab has a strong balance sheet.
As of March 31, Rocket Lab held a cash position of $492.522 million and had inventories of $99.901 million, leaving it with current assets of $725.623 million. Current liabilities at that time added up to $232.462 million, including short-term debt of $10.996 million. Those numbers put the company's current ratio at a quite robust 3.12, and a muscular quick ratio of 2.69.
Total assets amounted to $1.182 billion, including $137.865 million worth of "goodwill" and other intangibles. At less than 12% of total assets, we don't worry about that. Total liabilities less equity came to $702.978 million, including $396.546 million in long-term debt. This is a solid balance sheet, as that debt-load could be paid off completely out of the cash position if need be.
Most of that debt, $343.829 million, is in the form of convertible senior notes, so the Roclket Lab is at risk, if the stock price rises steadily, of some dilution. These notes, for the most part, come due in 2029, and run with a conversion price of approximately $5.13 per share of common stock.
My Thoughts
When we talked on July 1, the stock was testing the lower trendline of this Pitchfork model from above. Eleven days later, the stock has taken the central trendline in a two-day move.
The stock has also benefited from a "golden" crossover by its 50-day simple moving average (SMA) over its 200-day SMA. I would not be surprised if the shares were to retest that central trendline from above as they had the lower trendline. That would put the upper trendline, where there has not yet been any action, in play. The pivot remains the central trendline, which has moved higher.
Target Price: $7.25, up from $7.00.
Pivot: $5.60, up from $5.16.
Add: On retest of central trendline and down to 21-day exponential moving average (EMA).
Panic: Break below the 200-day SMA.
At the time of publication, Guilfoyle was long RKLB equity.
