Key Points
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The potential delay of the Neutron rocket to 2027 is causing Rocket Lab’s stock to dip.
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It has grand ambitions to become a fully integrated provider of space-economy services.
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The stock still looks expensive even after falling more than 50%.
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This summer, we saw the debut of Space Exploration Technologies — otherwise known as SpaceX — stock in a massive initial public offering (IPO). We also saw share prices across space-economy stocks collapse after said IPO, with no better example than Rocket Lab (NASDAQ: RKLB), one of the sector’s biggest names in public markets.
Shares of the rocket flight and space services company trade down about 58% from the highs set earlier this year, even though its revenue grew 62% year over year last quarter. A falling share price and a growing business can develop into a great buying opportunity.
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Does that mean now is the time to buy the dip on Rocket Lab stock?
Image source: Getty Images.
More Neutron delays
There is a lot going on with Rocket Lab’s business, but none is more important to its future than a product that doesn’t generate any revenue today: its Neutron rocket.
The Neutron is a larger rocket type than its existing workhorse, named the Electron. Larger payloads mean each launch can carry more products into orbit for third parties (mainly satellites), resulting in more revenue per launch. It is similar in size to SpaceX’s workhorse Falcon 9 rocket, and the Neutron already has numerous proposed orders from commercial operators and the United States government.
So, what’s the problem? Well, originally, the Neutron rocket was planned to debut in 2024. Over the last few years, this first launch date has been consistently pushed back, and most recently, it looks like it won’t happen until the beginning of 2027. Without the Neutron performing test flights and eventually carrying commercial payloads, Rocket Lab’s launch revenue will remain sub-scale compared to competitor SpaceX.
Aiming for fully integrated services
For those who are taking a long-term view, it may not matter exactly which quarter the Neutron begins flying, only that it eventually starts flying regularly without mishaps, helping Rocket Lab’s launch division take a great leap forward.
The Neutron brings together Rocket Lab’s comprehensive long-term vision: to be a fully integrated seller of products and services for the space economy. In fact, its space systems segment — which houses divisions that make items such as satellites, optical lenses, software, and robotics for third parties in space — generated more revenue last quarter ($189.5 million) than its launch division ($44.6 million).
Once the Neutron is up and running, it should lead to even more contracts and revenue from space systems, because Rocket Lab can then sell its launch service and the sub-components of customer payloads as a bundle.
Even longer-term, Rocket Lab plans to sell its own space-economy services. This is being accelerated with its acquisition of Iridium Communications, which operates a satellite internet constellation. Leveraging its expertise in space systems development, Rocket Lab plans to accelerate Iridium’s growth to help it compete more directly with SpaceX’s Starlink service.
Data by YCharts.
Time to buy the dip on Rocket Lab?
There is a lot to like about the potential growth of Rocket Lab. When you add up Neutron, space systems, and the Iridium acquisition, it wouldn’t be shocking to see its trailing revenue of $769 million grow into the billions within a few years.
You might be thinking this makes the stock an easy buy-the-dip candidate. There are a few problems, though. Rocket Lab has never generated a profit, and its gross margins are quite low given the heavy capital intensity of rocket launches and space manufacturing. This needs to be taken into account when valuing shares.
The stock’s shares don’t look that cheap, either, even after getting cut in half within the last few months. It has a price-to-sales ratio (P/S) of 48, which implies many years of growth are already priced in. This is 48 times its trailing revenue, let alone any potential earnings power hidden in all of Rocket Lab’s upfront investments.
Even if a company has a blue ocean of growth ahead, valuation still matters, which is why investors should not yet buy the dip in Rocket Lab stock.
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Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Rocket Lab. The Motley Fool has a disclosure policy.
