Rocket Lab USA (RKLB 2.16%) has been on quite the rollercoaster over the past 12 months, experiencing a dramatic surge in stock price that caught many investors’ attention. Starting at around $4 in the spring of 2024, the shares skyrocketed past $30 by January of this year. That’s an impressive increase, more than sevenfold in less than a year! This optimism was fueled by the company’s strides as a formidable challenger to SpaceX, steadily increasing its rocket launches and enhancing its reputation as a comprehensive space economy platform.
However, tides have turned, and a wave of pessimism has washed over investors. There are concerns, mainly centered around the anticipated Neutron rocket. Some analysts predict delays past the 2025 timeline that management has promised, contributing to a recent sharp decline in Rocket Lab’s stock. With shares now plummeting 40% from their peak, the burning question is whether now is the right time to invest in Rocket Lab stock.
### Reliable Rocket Launches
Much like SpaceX in its early days, Rocket Lab’s viability as a business is nearly miraculous given the complexities involved. The intricacies of launching rockets are vast, and a single mishap can be detrimental to a company’s brand. Despite these challenges, Rocket Lab has established itself as the second private company in North America capable of reliably launching rockets for both commercial and government clients. Their strategy focuses on small payloads delivered via the Electron rocket, a market niche overlooked by SpaceX. Impressively, the Electron rocket achieved a flawless mission success rate across 16 launches in 2024. The company is optimistic about even more missions in 2025.
In a bid to diversify its offerings, Rocket Lab has quickly advanced its Space Systems segment, which constructs the products launched on Electron missions for its customers, including third-party collaborations like those with SpaceX. The Space Systems segment saw its revenue skyrocket to $311 million in 2024, up from $172.7 million in the previous year. Overall, the revenue shot up to $436 million, a significant rise from under $100 million a few years back. This makes Rocket Lab one of the fastest-growing entities in the public market today.
### Concerns Over Neutron Rocket Delays
While Rocket Lab’s growth story is remarkable, some enthusiasts believe the company’s exciting journey has only just begun. The management has high hopes for the Neutron rocket, slated for a debut and test flight in 2025. This larger rocket can carry heavier payloads, offering the potential for increased revenue per launch with estimates suggesting charges of at least $50 million per Neutron launch, compared to below $10 million for the Electron.
This announcement sent the stock price soaring, but there’s some wariness about the timeline. Critics argue that the company might be overzealous in its development schedule. With the complete rocket system not yet assembled and essential infrastructure still under construction, analysts like those at Bleecker Street Capital speculate the Neutron might not launch until 2026 or 2027. The financial strain from development costs could force Rocket Lab to seek additional funds through stock or debt, possibly driving the stock price down further.
### Should You Consider Buying Rocket Lab Stock?
With a solid execution record so far, Rocket Lab has built a reputable standing among investors and clients alike through its consistent Electron launches and the expansion of its Space Systems division. Yet, the uncertainties surrounding the Neutron rocket remain significant.
The company finds itself at a pivotal moment. If Neutron’s development remains on schedule, Rocket Lab might continue its rapid revenue growth possibly turning profitable. Also on the horizon is their ambitious plan to create a satellite constellation offering software services, similar to SpaceX’s Starlink. Should they succeed, this could significantly boost Rocket Lab’s profitability.
However, given the current scenario, I’m inclined to hold off on recommending Rocket Lab as a buy. The risks associated with a potential Neutron delay appear to be insufficiently factored into the current market value of $9.5 billion. The stock price seems to assume Neutron’s success as a foregone conclusion. Remember, the launch business is low-margin. Even in an optimistic scenario where Rocket Lab’s revenue climbs to $2 billion with a 20% profit margin, that would translate to $400 million in earnings — a forward P/E ratio of 24. These earnings won’t be immediate and would take years to materialize.
At present, with the company generating less than $500 million in revenue and a nearly $200 million annual loss, my advice would be to keep Rocket Lab stock on your watchlist despite this significant downturn in 2025.
