Rocket Lab (RKLB) at $40: Is the Stock Overvalued or a Buy on Neutron Delays?

The stock of Rocket Lab (NASDAQ: RKLB) has surged to $40, marking a 600% climb over the past year, fueled by optimism around its Neutron rocket and defense contracts. But with delays mounting for Neutron's debut launch and the stock trading at a sky-high valuation, investors face a critical question: Is this a buying opportunity, or has the market priced in too much success too soon? Let's dissect the risks and catalysts.

Valuation Risks: The Case for Caution

Rocket Lab's current valuation is staggering. With a market cap of $15 billion, the stock trades at a price-to-sales (P/S) ratio of 36, far exceeding the S&P 500's average of 3. This premium hinges on the assumption that Neutron will successfully penetrate the $10 billion medium-lift rocket market and deliver high-margin revenue. However, there are glaring red flags:

1. Cash Burn and Funding Needs: Rocket Lab reported a $30 million EBITDA loss in Q1 2025 and burns cash at a rate of $177 million annually. While it has $500 million in cash, analysts estimate it may need $300–$600 million more to complete Neutron's development. Raising capital could dilute shareholders, especially if the stock price falters.

2. Neutron's Delays: Originally targeting a mid-2025 launch, Neutron now faces delays to mid-2026 or later due to engine revisions, infrastructure bottlenecks, and regulatory hurdles. A slip to 2027 would strain cash reserves and erode investor confidence.

3. Profitability Challenges: Even with optimistic revenue projections of $3 billion (ten times current levels), Rocket Lab's margins remain thin. At a 10% net profit margin, its earnings would still support a P/E ratio over 50, suggesting the stock is overvalued at current levels.

Growth Catalysts: The Bull Case

Rocket Lab isn't without its strengths. Its Electron rocket maintains a 48-hour turnaround time, enabling a record 20+ launches in 2025. This reliability secures steady revenue, with $1.067 billion in backlog as of Q1 2025. Key catalysts include:

1. Defense Contracts: Over 60% of revenue comes from government programs like the National Security Space Launch (NSSL) Phase 3, which could award up to $5.6 billion in contracts. The Air Force's suborbital cargo mission for Neutron in 2026 adds credibility.

2. Neutron's Potential: If launched successfully in 2026, Neutron could rival SpaceX's Falcon 9. With a $50–$55 million price tag, it targets the medium-lift market, offering 13,000 kg to LEO—a sweet spot for satellites and defense payloads.

3. Strategic Acquisitions: The purchase of Geost bolsters its defense tech capabilities, positioning it for contracts like the “Golden Dome” missile defense system.

The Tipping Point: Neutron's Launch Timeline

The stock's fate hinges on Neutron's progress. A mid-2026 launch would delay revenue recognition, forcing Rocket Lab to rely on cash reserves. A further slip to 2027 or beyond could trigger a valuation correction, especially if competitors like SpaceX undercut pricing. Conversely, a 2025 launch (despite CEO claims, this now seems unlikely) would send the stock soaring.

Investment Advice: Wait for a Pullback

While Rocket Lab's long-term potential is undeniable, the $40 price tag leaves little margin for error. Investors should:

1. Avoid buying at current levels: The stock is vulnerable to Neutron delays, cash burn concerns, and macroeconomic risks (e.g., a recession squeezing defense budgets).

2. Target a pullback: A drop to $25–$30—driven by a confirmed 2026 launch delay or quarterly cash flow warnings—would create a safer entry point.

3. Monitor key milestones: Track Neutron's engine testing completion, Wallops launchpad readiness, and first flight success. Positive news could reignite momentum.

Conclusion

Rocket Lab is a high-risk, high-reward bet. Its Electron rocket and defense contracts provide a solid foundation, but Neutron's delays and overvaluation at $40 make this a wait-and-see story. For now, investors are better off sitting on the sidelines until the stock corrects—or Neutron proves it can defy the odds.

Final Take: Hold off on buying at $40. Wait for a pullback to $25–$30, triggered by delayed Neutron timelines or cash flow concerns, before considering a position.