Shares of Rocket Lab (RKLB +3.24%) slipped 33% last month, according to data from S&P Global Market Intelligence. The upstart space flight company trying to compete with SpaceX had another strong earnings report, but delayed the test launch for its new, larger rocket type called the Neutron, which caused investors to sell off shares.
Despite this drop, Rocket Lab shares are up 100% in the last twelve months. Here's why the stock fell in November, and whether it is finally a buy.
NASDAQ: RKLB
Key Data Points
Delayed debut for the Neutron rocket
By developing a small rocket called the Electron, Rocket Lab was able to wiggle its way into the commercial rocket launch sector by attacking an area that SpaceX did not serve: small payloads. The Electron is now flying missions at a rate of 20 per year, with a backlog of over $500 million in contracted revenue.
On top of launches, Rocket Lab has grown its space systems revenue, which builds technology and products for space missions. It recently took part in an unmanned mission to Mars, for reference. Growing demand for the space economy has Rocket Lab's revenue soaring, up 48% year-over-year last quarter to $155 million.
The next step in Rocket Lab's development is the Neutron rocket. It is significantly larger than the Electron, will compete directly with SpaceX, and should garner much higher revenue per launch, leading to even more revenue growth. Test flights were supposed to begin in 2025, but were pushed back to 2026 in November. This is the main reason why Rocket Lab's stock fell last month.
Image source: Getty Images.
Is Rocket Lab stock finally a buy?
Scaling up the Neutron launch business in a timely manner will be important for Rocket Lab to manage its cash burn. The company has burned $232 million in free cash flow over the last twelve months in order to develop the Neutron and its launch sites, which it hopes to recoup once the system starts making trips for customers. The longer it goes without any commercial launches, the more cash Rocket Lab is likely to burn.
Does that make Rocket Lab stock cheap right now? Looking at its market cap of $25.6 billion and trailing revenue of only $550 million, the stock trades at an extremely high price-to-sales ratio (P/S), especially for a low-margin business. Even if the Neutron is a successful product, Rocket Lab's stock looks overvalued right now.
