We recently started a series called “Penny Stock of the Day”. These ideas are geared towards traders with an extremely high risk appetite.
Our Penny Stock of the Day is chosen by screening for stocks under $5 and then applying technical analysis on the shortlisted set of penny stocks showing unusual volume. When making these trades, please make sure to pay vigilant attention to pricing moves and have a strict stop loss in place to avoid significant losses.
Penny Stock of the Day: Rocket Lab USA, Inc. (NASDAQ: RKLB)
Today’s penny stock pick is the space company, Rocket Lab USA, Inc. (NASDAQ: RKLB).
Rocket Lab USA, Inc. provides launch services and space systems solutions for the space and defense industries. The company provides launch services, spacecraft design services, spacecraft components, spacecraft manufacturing, and other spacecraft and on-orbit management solutions; and constellation management services, as well as designs and manufactures small and medium-class rockets.
It also designs, manufactures, and sells Electron small orbital launch vehicles and the Photon satellite platforms, as well as developing the Neutron 8-ton payload class launch vehicle; conducts remote launch activities; and designs and manufactures a range of components and subsystems for the Photon family of spacecraft and broader merchant spacecraft components. The company serves commercial, aerospace prime contractors, and government customers.
Website: https://www.rocketlabusa.com
Latest 10-k report: https://investors.rocketlabusa.com/financials/sec-filings/sec-filings-details/default.aspx?FilingId=16473075
Analyst Consensus: As per TipRanks Analytics, based on 8 Wall Street analysts offering 12-month price targets for RKLB in the last 3 months, the stock has an average price target of $8.32, which is nearly 102% upside from current levels.
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The company added a NASA contract and announced the delivery of its first Photon spacecraft for in-space manufacturing company Varda.
- Hedge Funds Increased Holdings by 1.1M Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
On analyzing the company’s stock charts, there seem to be multiple bullish indications…
Bullish Indications
#1 Symmetrical Triangle Pattern: The daily chart shows that the stock is currently forming a symmetrical triangle pattern, which is marked as purple color lines. A symmetrical triangle pattern represents a period of consolidation before the price breaks out. This is typically formed when there is indecision in the price movements and uncertainty among the buyers and sellers. Once a breakout from the upper trend line occurs, it usually signifies the start of a new bullish trend.
RKLB – Daily Chart
#2 Bullish ADX and DI: The ADX indicator shows bullishness as the +DI line is above the -DI line, and the ADX line is currently moving higher from below the +DI and -DI lines.
#3 Price above MA: The stock is currently above its 50-day SMA, indicating that the bulls have currently gained control.
#4 MACD above Signal Line: In the daily chart, the MACD (light blue color) is currently above the MACD signal line (orange color). This indicates a possible bullish setup.
#5Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30. This indicates bullishness.
#6 Above Support Area: The weekly chart shows that the stock is currently trading above a support area, which is marked as a pink color dotted line. This looks like a good area for the stock to move higher.
RKLB – Weekly Chart
#7 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart, indicating possible bullishness.
#8 MACD above Signal Line: In the weekly chart, the MACD (light blue color) is currently above the MACD signal line (orange color). This indicates a possible bullish setup.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for RKLB is above the price of $4.30.
Target Prices: Our first target is $5.20. If it closes above that level, the second target price is $5.80.
Stop Loss: To limit risk, place a stop loss at $3.80. Note that the stop loss is on a closing basis.
Our target potential upside is 21% to 35%.
For a risk of $0.50, our first target reward is $0.90, and the second target reward is $1.50. This is a nearly 1:2 and 1:3 risk-reward trade.
In other words, this trade offers 2x to 3x more potential upside than downside.
Potential Risks / Red Flags:
- The company has a history of net losses. RKLB reported net losses of $135.9 million, $117.3 million, and $55.0 million for the years ended December 31, 2022, 2021, and 2020, respectively.
RKLB – Consolidated Statements of Operations
- Corporate Insiders Sold Shares Worth $366.8K in the Last 3 Months.
Insiders | Source: TipRanks.com
- The company has customer concentration risk. For the year ended December 31, 2022, RKLB’s top five customers together accounted for approximately 37% of its revenues and its top five backlog customers accounted for approximately 62% of its backlog as of December 31, 2022.
- Despite being a loss-making company, the executives are being paid significant compensation.
RKLB – Executive Compensation
As you can see, today’s featured penny stock offers big upside potential… but it also comes with a number of risks and red flags. As always, when dealing with penny stocks, we advise caution before entering into such high-risk ventures. Remember to think before you trade… understand the risks… and if you decide to trade, stick to your stop-losses!
Happy Trading!
Trades of the Day Research Team
READ BEFORE TRADING PENNY STOCKS: The allure of penny stocks lies in their potential to deliver massive gains in a short period of time. However, in exchange for that opportunity, most penny stocks carry tremendous risk. They can be extremely volatile and are susceptible to “pump and dump” schemes and fraud.
Unlike regular stocks, the financial condition of most penny stock companies can be extremely difficult to analyze, as the majority of such stocks are traded on over-the-counter (OTC) exchanges, which are typically less transparent and less regulated than the major exchanges. In fact, in the penny stock space, it’s often easier to spot warning signs and red flags than it is to identify a sound investment. Nevertheless, we do our best to identify short-term trade opportunities in this exciting space because we know some of our readers are looking for high-risk, high-reward ideas. We just urge you to make sure you fully understand the risks before making any of these trades.