Dumb Money Has Fled Rocket Lab Stock. Is It Finally Safe to Buy?

It's been an interesting year for Rocket Lab (NASDAQ: RKLB) investors.

2025, if you recall, was supposed to be the year that Rocket Lab would conduct its first-ever launch of an orbital-class, medium-lift, reusable rocket that could both launch and land back on Earth: Neutron. As investors anticipated the imminent launch, Rocket Lab's stock price -- well, it rocketed, hitting an intraday high just shy of $74 a share on Oct. 15, and closing north of $69 a share, up 176% since the start of the year.

It's been mostly downhill since.

From Oct. 15 through Nov. 18, Rocket Lab stock lost $26 worth of its value, closing below $43 this past Tuesday. That's a 38% plunge in just over one month. And granted, a lot of the decline happened just last week, after Rocket Lab CEO Peter Beck admitted that the company will almost certainly have to delay Neutron's first launch until early 2026 -- but that's not the only reason Rocket Lab is down.

It's also down because... it stopped going up.

Image source: Getty Images.

Rocket Lab was a momentum stock

Rocket Lab became something of a momentum stock this year -- verging on a meme stock.

I say this not to detract from Rocket Lab's successes. Since starting operations eight years ago, Rocket Lab has launched Electron rockets 75 times, mostly to orbit (some were suborbital hypersonic tests for the Department of Defense), and mostly (about 93%) successful. Each passing year sees the company's launch cadence accelerate. Beck himself believes the company will succeed in launching at least 20 times this year, even if Neutron isn't one of them.

Rocket Lab's also scored some successes on the financial front. Although not yet profitable on the bottom line, Rocket Lab has grown its annual revenue 15 times in size over the past five years and flipped from gross losses to gross profits (and a 32% gross profit margin, according to data from S&P Global Market Intelligence).

Once Neutron begins launching, analysts forecast the company will quickly complete its quest to become profitable on a generally accepted accounting principles (GAAP) basis, and begin generating positive free cash flow. Currently, 2027 is the target year for achieving both milestones.

And yet, by Beck's own admission, a delay in Neutron flying to 2026 will probably mean a delay in the company's plans to progressively grow the rocket's launch cadence -- and a delay in profitability as well. While a tiny setback in the grand scheme of things, Rocket Lab stock was priced for perfection before news of the delay broke.

And now that it has broken, Rocket Lab's stock price momentum has broken as well.

What this means for investors

This won't come as a huge surprise to the smart money analysts who kept on telling ordinary investors like you and me -- the "dumb money" in this market -- to keep on buying Rocket Lab stock even as it soared to irrationally exuberant heights. It didn't take a genius to realize that, at a market capitalization 63 times its annual sales pre-earnings, Rocket Lab stock had become priced for perfection and was due for a pullback.

What is kind of surprising is that, now that Rocket Lab stock has hit its inevitable stumble, and now that the share price has fallen 38%, more Wall Street analysts aren't putting their reputations where their ratings are, and urging investors to take advantage of the buying opportunity.

Why might that be? Doesn't the stock's huge post-earnings haircut mean it is now safe to buy Rocket Lab?

Unfortunately, no. I mean, just look at the numbers. With $555 million in trailing sales and a stock valued at nearly $23 billion, Rocket Lab still sells for a very rich price-to-sales multiple of 40. It's still unprofitable and, with Neutron delayed, its profitability has also probably been delayed by a year. In a situation like this, with momentum having also broken, doubling down on a buy rating could prove doubly embarrassing for any analyst who risks it.

As for me, as a longtime Rocket Lab shareholder, I remain a huge fan of Rocket Lab's business, and I feel no real need to sell the stock I own.

I just won't be buying any more shares, not until Rocket Lab earns its first profit -- or gets even cheaper than it already is today.

Rich Smith has positions in Rocket Lab. The Motley Fool has positions in and recommends Rocket Lab. The Motley Fool has a disclosure policy.