Rocket Lab Just Had the Worst Week in Its History. Here's What I'd Do With the Stock Now.

Within a span of one week, Rocket Lab's stock price plummeted by 23%, marking its worst single-week decline since its initial public offering five years ago. This decline occurred between October 12 and October 16. Despite this setback, Rocket Lab remains a significant player in the reusable orbital rocket market, having successfully launched its Electron rockets 97 times to deploy over 268 satellites.

The company's Electron rocket carries smaller payloads compared to SpaceX's Falcon rockets. Originally, Rocket Lab planned to launch its larger Neutron rocket, designed to compete with SpaceX's Falcon 9, by the end of 2026. However, on October 14, the launch of Neutron was postponed to 2027 due to a defect in its carbon-composite tank.

This isn't the first time Rocket Lab has faced delays for Neutron; the project's initial launch target was moved from 2024 to 2025 and then to 2026. Additionally, on the same week, Ligado Networks challenged Rocket Lab's planned acquisition of Iridium Corporation, arguing that Iridium frequently uses petitions to delay competing satellite services.

If the Federal Communications Commission scrutinizes the $8 billion deal, it could hinder Rocket Lab's expansion into a comprehensive space services company. Although Rocket Lab's Launch Services segment, which includes its Electron and Neutron rockets, generated only 19% of its revenue in the latest quarter, its Space Systems segment, responsible for producing satellite components, solar panels, and complete spacecraft buses, accounted for 81% of its revenue.

The acquisition of Iridium, expected to close in 2027, will expand Rocket Lab's Space Systems segment by adding a global satellite network. Rocket Lab's backlog reached $2.36 billion at the end of the second quarter, more than double its projected revenue of $959 million for 2026. Analysts forecast Rocket Lab's revenue to grow 38% to $1.33 billion in 2027 and 31% to $1.74 billion in 2028, contingent on the successful introduction of Neutron and the acquisition of Iridium.

With a market capitalization of $30.5 billion, Rocket Lab trades at 32 times its current sales, and it is expected to remain unprofitable until 2028. This high valuation and ongoing losses may limit its upside potential as long as interest rates remain high, driving investors towards more conservative assets. Competing with SpaceX, which launches more rockets and satellites, could also deter value-seeking investors from Rocket Lab, AST SpaceMobile, and other smaller space stocks.

Consequently, while Rocket Lab could still experience substantial growth over the next few years, potential investors should exercise caution, as the stock may currently be priced too high for its intrinsic value. The author suggests waiting for clearer progress toward Neutron's first launch and the successful completion of Iridium's acquisition before considering a purchase.