Rocket Lab USA Inc (NASDAQ: RKLB) is engaged in space, building rockets, and spacecraft. It provides end-to-end mission services that provide frequent and reliable access to space for civil, defense, and commercial markets. It designs and manufactures the Electron and Neutron launch vehicles and Photon satellite platform. Rocket Lab's Electron launch vehicle has delivered more than 100 satellites to orbit for private and public sector organizations, enabling operations in national security, scientific research, space debris mitigation, Earth observation, climate monitoring, and communications.

Key highlights 

• Weak financial performance in Q3 2021: The company reported decline by 51% to its revenue which stood at USD 5.2 million against USD 10.6 million in the previous corresponding period. Whereas its operating loss and net loss also escalated by a huge margin, which is not a healthy sign.
  

Source: Company Flings 

• Sequentially degrading margins: The Company failed to maintain its pace on a sequential basis, resulting in a weaker operational matrix. Its key margin profile is showing signs of distress and is on negative side, indicating the company is losing its edge.

 Source: REFINITIV, Analysis by Kalkine Group 

• Rising net cash used in operating activities: In the recent reported financial numbers the company saw a huge uprise in its cash used in operating activities at USD 49.8 million against USD 21.4 million in pcp.

• Bearish technical indicators: On the daily price chart, the stock has recently experienced a breakdown on its previous support level, indicating that the stock would possibly witness a price correction or consolidation. Also, the stock is continuously trading below its long term SMA levels of 50 days as well as of 100 days, which supports our rational that the stock’s weakness may continue.

   Source: REFINITIV, Analysis by Kalkine Group 

Stock recommendation 

On the valuation front, the stock is available at a forward EV to SALES multiple of 19.5x, which is much higher compared to the industry (Aerospace & Defense) median of 1.9x. Also, on the technical front the stock is witnessing a bearish trend where the price is trading below its key support levels of the simple moving average of 50-days and 100-days, respectively, indicating a bearish price trend. Therefore, considering the lackluster fundamentals, negative operating margins, bearish technicals we recommend the investors to stay on the side lines, as we give an “Avoid” rating on the stock of RKLB at the last closing price of USD 10.70 on January 5, 2022.

*The reference data in this report has been partly sourced from REFINITIV.

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