Rocket Lab Delayed Neutron Over Voids in a Carbon-Composite Tank Dome. Here's Why That's Better News Than It Sounds.
Key Points
Rocket Lab found a defect in its Neutron rocket.
The company can easily fix it, but it is delaying commercial launches until 2027.
Significant cash burn puts Rocket Lab in a difficult financial position.
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Rocket testing is notorious for delays and cost overruns. With that in mind, it is no surprise that Rocket Lab (NASDAQ: RKLB) has pushed the debut of its new, larger Neutron rocket into 2027 after engineers found a defect in the propellant dome.
While this is not good news for Rocket Lab investors, the delay is not as bad as it sounds. Here's what happened and whether Rocket Lab stock is a good buy-the-dip candidate at a current price around $50 per share.
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More delays, but a path to the finish line
The Neutron is Rocket Lab's larger-payload rocket, developed to compete more aggressively with Space Exploration Technologies' offerings. It will have a significantly larger payload than its current rocket, the Electron, meaning much more potential for revenue per launch or sending Rocket Lab's own payloads into orbit. Originally, Rocket Lab wanted to debut the Neutron in 2024.
Now, it is getting pushed back from its latest 2026 timeline to early 2027 for a commercial debut. Why? Engineers recently found a defect known as air pockets in the carbon fiber of the propellant dome, which could lead to explosions on launch. Rocket Lab will now need to rework the composite to fix this issue.
While this is clearly a setback, it is better that Rocket Lab found this issue in the testing phase before actually launching the Neutron, potentially setting hundreds of millions of dollars in research and equipment on fire in the process. On another positive note, no other defects have been found in other parts of the Neutron, meaning there is now a high likelihood that a commercial debut will occur next year.
Image source: Getty Images.
What's next for the stock?
Right now, Rocket Lab is a sub-scale player in the rocket launch game, generating $769 million in revenue over the last 12 months. Each Neutron launch could contribute $50 million in revenue on top of Rocket Lab's existing revenue base, requiring only a few launches a year to drive significant revenue growth for the business.
Financially, Rocket Lab is in a slightly precarious position, with free cash flow of negative $371 million over the last 12 months. It is imperative for the company to get the Neutron debut right and to start scaling up launches to achieve positive free cash flow.
If it does, the stock is likely going to rise from here. If not, there is probably further room to fall. So, is it a buy? The answer is not clear.
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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.
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