Rocket Lab’s Rapid Revenue Growth Fails to Arrest Stock Slide

Key Points

• The anticipated delay of the Neutron rocket until 2027 is weighing on Rocket Lab’s stock price.

• The company aspires to become a fully integrated provider of space-economy services.

• Despite a drop of over 50%, the stock remains valued at a premium.

Earlier this year, Space Exploration Technologies, commonly known as SpaceX, made its highly anticipated stock market debut through a massive initial public offering (IPO). Following this event, valuations across the space-economy sector experienced a sharp correction. Rocket Lab (NASDAQ: RKLB), a major player in the public markets, was among the most significantly impacted.

Despite a 62% year-over-year revenue increase in the most recent quarter, the company’s shares have fallen approximately 58% from their earlier highs this year. A declining share price paired with expanding business operations could potentially create a compelling buying opportunity.

Does this mean now is the time to buy the dip on Rocket Lab stock?

Image source: Getty Images.

Neutron Rocket Delays

While Rocket Lab has a multifaceted business, none is more critical to its future than a product currently generating zero revenue: the Neutron rocket.

The Neutron is significantly larger than Rocket Lab’s current workhorse, the Electron. This increased size allows for heavier payloads, enabling more products—primarily satellites—to reach orbit per launch and thereby increasing revenue per mission. Comparable in scale to SpaceX’s Falcon 9, the Neutron already boasts numerous proposed orders from commercial entities and the U.S. government.

The primary issue is the rocket’s developmental timeline. Initially slated for a 2024 debut, the Neutron’s first launch has been repeatedly postponed and is now not expected until early 2027. Until the Neutron completes test flights and successfully carries commercial payloads, Rocket Lab’s launch revenue will remain sub-scale compared to competitor SpaceX.

Pursuing Integrated Space Services

For long-term investors, the exact quarter of the Neutron’s debut may be secondary to the assurance that it will eventually fly regularly and reliably, providing a significant leap forward for Rocket Lab’s launch division.

The Neutron is central to Rocket Lab’s long-term vision of becoming a fully integrated provider of space-economy products and services. Notably, the company’s space systems segment—which manufactures items like satellites, optical lenses, software, and robotics for third parties—generated more revenue last quarter ($189.5 million) than its launch division ($44.6 million).

Once operational, the Neutron should drive additional contracts and revenue for the space systems segment, as Rocket Lab will be able to bundle its launch services with the sub-components of customer payloads.

Looking further ahead, Rocket Lab intends to offer its own space-economy services. This strategy is being accelerated by the acquisition of Iridium Communications, which operates a satellite internet constellation. By leveraging its space systems development expertise, Rocket Lab aims to boost Iridium’s growth, allowing it to compete more directly with SpaceX’s Starlink service.

Data by YCharts.

Is Rocket Lab a Buying Opportunity?

Rocket Lab possesses significant growth potential. Combining the future impact of the Neutron, its space systems division, and the Iridium acquisition, it would not be surprising to see its trailing revenue of $769 million expand into the billions in the coming years.

One might assume this makes the stock an obvious buy-the-dip candidate. However, several challenges remain. Rocket Lab has never achieved profitability, and its gross margins are notably low due to the heavy capital intensity inherent in rocket launches and space manufacturing. These factors must be considered when valuing the shares.

The stock also does not appear cheap, even after losing half its value in recent months. With a price-to-sales (P/S) ratio of 48, the market has already priced in many years of anticipated growth. This valuation is based on 48 times its trailing revenue, excluding any potential earnings power that might emerge from Rocket Lab’s substantial upfront investments.

Even with a vast growth runway ahead, valuation remains critical. This is why investors should not rush to buy the dip in Rocket Lab stock.

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