Rocket Lab Just Had Another Setback. Here’s Why I’m Finally Buying the Stock Anyway

I've been a fan of Rocket Lab (NASDAQ:RKLB) for years, but have never pulled the trigger on the stock. The business continued to show impressive traction, but I had valuation concerns that kept me on the sidelines.

Last week, Rocket Lab delayed its Neutron rocket for the second time this year, and the stock fell sharply on the news. In fact, Rocket Lab now trades for about two-thirds below its all-time high (reached in May), and even with the delay, I'm finally about to buy my first shares.

The Neutron delay: What you need to know

Every Rocket Lab launch to date has used its small Electron rocket, but the company has been developing a reusable medium-lift rocket, Neutron, for several years. This is designed to carry much larger payloads and to compete with SpaceX's (NASDAQ:SPCX) Falcon 9.

Image source: Getty Images.

Its first launch (which had already been delayed several times) was supposed to happen in the fourth quarter of 2026. However, a recent inspection found a manufacturing flaw in the carbon composite of a tank dome in the rocket's first stage, so the company is now building a replacement.

Rocket Lab now expects the first Neutron launch in 2027, and it won't set a date until it finishes first-stage testing. It hopes to complete this step in the first quarter.

Of course, this isn't great news. Management's goal of positive adjusted EBITDA is tied to Neutron's success, so this likely delays the company's path to profitability as well.

How Rocket Lab makes its money today

You might be surprised how little of Rocket Lab's revenue depends directly on launches. In the second quarter, Rocket Lab's revenue reached $234 million, representing 62% year-over-year growth, with $190 million from space systems (satellites, spacecraft, and components).

Rocket Lab ended the second quarter with $2.36 billion of revenue in backlog, more than double the year-ago level, so it's fair to say that a lot of this future revenue will be Neutron-dependent. On one hand, about 60% of the backlog comes from space systems. But there is a backlog of about 100 upcoming missions, and although many are Electron launches, the Neutron certainly plays a role in this. In other words, the Neutron delay pushes back some future revenue, but most of the backlog doesn't depend on it.

However, it's also worth mentioning that Rocket Lab has agreed to acquire Iridium Communications for about $8 billion, including debt. This deal, expected to close in mid-2027, will add a large base of recurring satellite services revenue as well as valuable spectrum assets. Rocket Lab will be able to build, launch, and operate its own satellite networks, putting it in very exclusive company.

Why I'm finally buying now

To be sure, Rocket Lab isn't a particularly cheap stock, even after the recent decline. At the current market cap, it trades for about 40 times sales, and it's still losing money. Plus, more Neutron delays are certainly possible.

However, the long-term potential here is massive, and I'm going to start with a small position. This is generally how I start any stock I want to own, but I feel it is on the more aggressive end of the spectrum. The idea here is that if I'm completely right, a small investment will still produce significant gains in my portfolio, but if I'm completely wrong, any declines wouldn't have a massive impact.

I plan to add over time, especially as Rocket Lab hits its milestones, including the Neutron's first launch. The delay is frustrating, but it doesn't change the long-term thesis. The backlog keeps rising, Iridium will add a profitable revenue stream when that deal closes, and the current valuation feels like one where patient investors can be rewarded.

Matt Frankel, CFP® 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.