Wall Street Thinks Rocket Lab Is a Buy. Here's Why I'm Not So Sure.
Key Points
The launch of its Neutron rocket was originally expected in 2025 but may slip again until 2027.
The stock has fallen more than 50% from its all-time high of $151, set back in late May.
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It's no secret that Wall Street analysts are very bullish on Rocket Lab (NASDAQ: RKLB). The majority rate the stock a buy with an average price target of about $109 per share. This is substantially higher than where the stock is trading as of this writing, at about $64.
Rocket Lab also just posted record revenue numbers in its latest quarterly earnings. Revenue increased 62% year over year, the space company's backlog ballooned to more than $2.3 billion, and momentum is strongly on Rocket Lab's side. Still, I'm not quite ready to jump on board.
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Let's start with the bottom line. Rocket Lab isn't close to profitable, and it looks like the prospect of becoming profitable is slipping further into the distance. The company's second-quarter earnings report showed total operating expenses accelerating from the year prior, reaching $142 million in the quarter and $274 million halfway through the year.
Rocket Lab's management expects cash burn to remain elevated for roughly the two years after its Neutron's first successful flight. The Neutron inaugural launch keeps getting pushed back as well. Its original target launch was slated for 2025, but even its latest target of Q4 2026 seems likely to slip again to 2027.
Image source: The Motley Fool.
Rocket Lab is also facing significant integration risk at the moment, having completed two acquisitions in 2026 and about to close another deal with Iridium Communications, which will add even more complexity.
Rocket Lab is positioning itself for immense growth in the coming years, particularly in a relatively nascent space. Still, profitability is getting pushed further out while the execution risk grows. I would like to see the company navigate these immediate issues before paying for a stock trading at an immense premium. Shares of Rocket Lab are trading at roughly 50 times its sales as of this writing.
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Catie Hogan 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.
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