Space launch and satellite specialist Rocket Lab USA (RKLB) has impressively outperformed over the past year, appreciating by 365% while reminding investors that space commerce could yet be a lucrative market once fully developed. However, despite the optimism, tough competitive and economic conditions warrant caution, especially after the initial euphoria of a private-sector space stock has faded. From a tactical perspective, I am bearish on RKLB stock.
One of the prime concerns is that despite RKLB stock being a market success story, the stock doesn’t pay dividends. Moreover, investors are arguably concerned about the economic challenges facing the nation and the world. Adding to the dilemma, the space economy — for all its upside potential — is a capital-intensive arena. With profitability not materializing until 2026, Rocket Lab’s growth must be consistently robust.
With so many potential potholes and sand traps along the way, the smarter move may be to trim exposure to RKLB stock down to a minimum or close the position entirely until the stock trades at more attractive levels in relation to the risk it carries.
Reading Between the Lines of RKLB Stock
At first glance, everything seems rosy at RKLB. Last week, the company disclosed its Q4 earnings report, revealing robust growth. RKLB posted its highest annual revenue of $436 million, representing a 78% lift from the prior year. Moreover, Q4 alone saw the top line expand by 121% year-over-year.
If that wasn’t enough, in 2024, Rocket Lab achieved 16 launches, a record number. Better yet, all the missions went off without a hitch, delivering a 100% success rate. Adding to the company’s credibility, it signed $450 million in new contracts last year, bolstering its backlog to over $1 billion. A significant news item was Flatellite, a low-cost, mass-producible satellite designed for large constellations.
However, it should be noted that RKLB stock has looked shaky throughout last week, losing about 14% of value. Part of the negative reaction could be due to the mixed Q4 performance. While revenue last quarter beat analysts’ consensus view, Rocket Lab disclosed a loss per share of 10 cents. In contrast, analysts anticipated a loss of 9 cents.
Still, the big miss came in the form of Q1 guidance. Management projected sales to land between $117 million and $123 million. However, the top of this range was well off analysts’ consensus view of $135.7 million.
RKLB’s Valuation Problem
Here’s the problem from a valuation standpoint: Currently, RKLB stock trades at 23.3x its trailing 12-month (TTM) sales. Even assuming that Rocket Lab hits revenue of $649.78 million—the most optimistic analyst projection—that would only bring the multiple down to 15.76x. Around this time last year, the market priced RKLB at 8.1x sales.
With senior management—that is, high-ranking members of Rocket Lab who know the business and the industry the best—downplaying expectations, it’s not really fair for shareholders to carry the burden of optimism under fire. Pragmatically, investors need to read between the lines. If the leadership team were genuinely optimistic about Rocket Lab amid a challenging economic environment, it should at least guide sales that align with analysts’ targets.
Economic Realities Place Rocket Lab on Shaky Ground
Another factor fueling my apprehension about overexposure to RKLB stock is the broader economic picture. Federal Reserve Chair Jerome Powell mentioned last month that the central bank isn’t hurrying to cut interest rates. With inflation still imposing challenges on consumers, this statement wasn’t surprising. At the same time, it puts Rocket Lab in an awkward position.
Given the capital-intensive nature of space exploration, venture capitalists prefer to invest in companies that leverage proprietary and unique technologies to achieve differentiation and build a wide moat in the parlance of Warren Buffett. In this manner, enterprises have a better chance of attaining resiliency and preventing competitors from gaining a market share foothold.
That leads back to the issue regarding RKLB stock following the last earnings report. Management is subtly admitting that the low-hanging fruit has been plucked. While Rocket Lab enjoys compelling innovations, investors may question whether that’s enough to keep rivals at bay.
Moving forward, the stakes will be higher and the competition hungrier. Should unexpected missteps or mishaps occur, the current environment doesn’t make for easy financing. Given how much RKLB stock has skyrocketed in the past year, many investors will be tempted to take some profits off the table. That’s the biggest concern—Rocket Lab may not have done enough, which could cause investors to dump the stock at a high premium.
Is Rocket Lab USA a Good Stock to Buy?
Turning to Wall Street, RKLB stock has a Moderate Buy consensus rating based on seven Buys, three Holds, and zero Sell ratings. The average price target for RKLB stock is $25.61 per share, which implies a ~23% upside potential.
RKLB Stock on Track for Turbulence
So far, Rocket Lab has been an investor success story, but its most effortless gains may be behind it. Without a solid, non-speculative reason to hold, investors might start heading for the exit—primarily as management lowers expectations and speculators head for the exits. When leadership signals caution, it’s rarely a good sign for shareholders to be the last ones holding onto optimism.
A more significant concern is the broader economic environment. Space is a capital-intensive industry, and the runway for sustained growth is shrinking with tighter financing conditions. Competition is intensifying, and if Rocket Lab stumbles, its premium valuation could entice heavy bearish sentiment for the stock later this year.