Rheinmetall share price has lost momentum in the past few months as the rally that happened a few months ago faded. RHM stock was trading at €1,830, down from its all-time high of €2,000. It has also formed the risky triple-top pattern pointing to more downside despite its revenue growth.
Rheinmetall share price technicals points to a reversal
The three-day timeframe chart shows that the RHM stock price peaked at €2,005 as the bull run happened. A closer look shows that it has formed a triple-top pattern at €2,000 and a neckline at €1,416, its lowest level on December 1.
A triple-top is one of the most popular bearish reversal patterns in technical analysis. It normally signals that bulls are hesitant of placing bids above the triple-top level.
Therefore, the stock will likely retreat, potentially to the neckline at €1,416, down by 22% below the current level. A drop below that price will point to more downside, pointing to more downside, potentially to the psychological level at €1,200.
On the positive side, there is a likelihood that the stock could be forming an inverted head-and-shoulders pattern, which often leads to more upside in the near term. A move above the all-time high of €2,005 will point to more gains, potentially to the key resistance level at €2,500.
Rheinmetall’s business is thriving as it seeks to build a Starlink rival
Rheinmetall, the biggest European defense group in Europe, is doing well, with its revenue and backlog, and the management hopes to continue this growth in the coming years.
The management is working with OHB to build a product that will compete with Elon Musk’s Starlink as it seeks to take advantage of Berlin’s €35 billion budget for military space technology.
Its goal is to create a secure, military-grade satellite communications network in low Earth orbit (LEO) for the German government. This is happening as the company continues to become a major player in the defense industry.
Rheinmetall is benefiting from the ongoing defense spending in Europe, where countries are seeking to end their resilience from the United States.
The European Union has already created a €150 billion defense fund known as Security Action for Europe (SAFE). This fund allows EU member countries to borrow to invest in defense equipment made mostly in Europe. Most importantly, analysts believe that Europe could spend as much as €14 trillion in defense and related infrastructure in the next decade.
Rheinmetall’s revenue and profitability have continued growing in the past few years. The most recent results showed that its backlog jumped to €64 billion, and the management predicted that it ended the year at €80 billion. This growth will accelerate this year as defense spending continues rising.
Rheinmetall’s sales rose by 20% in the first nine months to €7.5 billion, with most of this growth coming from its defense business. Its operating result rose from €705 million to €835 million, while its operating cash flow rose to €813 million.
A major challenge for the company is that it has become highly overvalued, with the price-to-earnings (PE) ratio rising to between 95 and 100, much higher than other defense companies like BAE Systems, RTX, and Lockheed Martin.
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