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Rocket Lab: Still A Buy Despite High Valuation

Cyrus ColeFriday, May 9, 2025 11:57 am ET
17min read

Rocket Lab (NASDAQ: RKLB) has long been a darling of the space economy, but its valuation has become a lightning rod for debate. With a market cap of $9.49 billion as of May 2025—up 440% year-over-year—the company’s stock trades at a price-to-sales (P/S) ratio of 23.9x, far exceeding the 2.1x industry median. Critics argue this premium is unsustainable, citing cash burn and production hurdles. Yet, rocket Lab’s strategic momentum, government contract wins, and diversification into space systems suggest the stock could remain a compelling long-term bet. Let’s dissect the numbers.

Financial Performance: Growth Amid Growing Pains

Rocket Lab’s Q1 2025 results underscore a company in transition. Revenue rose 32% YoY to $122.6 million, driven by its Space Systems division (now 71% of revenue), which builds satellites and components for government and commercial clients. Backlog hit a record $1.07 billion, with 54% tied to U.S. government contracts like the National Security Space Launch (NSSL) program.

However, challenges linger. Gross margins dipped sequentially due to lower-priced Electron launches and $6.9 million in R&D spending for its Neutron rocket. Free cash flow turned negative ($82.9 million in Q1), reflecting capital-intensive growth. While Q2 guidance calls for sequential revenue growth to $130–140 million, profitability remains elusive, with an adjusted EBITDA loss of $28–30 million projected.

Strategic Momentum: Neutron’s Pivot to Profitability

Rocket Lab’s valuation hinges on its ability to execute on two pillars:
1. Neutron Rocket: The company’s medium-class launcher, now on the U.S. Space Force’s NSSL program, could unlock high-margin national security launches. With Stage 2 engine testing complete and a planned 2025 debut, Neutron’s success could reduce reliance on smaller Electron launches and boost profitability.
2. Space Systems Dominance: The acquisition of laser communications firm Mynaric and launches of standardized products like STARRAY solar arrays position Rocket Lab as a full-stack space solutions provider. Mynaric’s tech, once scaled, could become a high-margin product line, diversifying revenue beyond launches.

RKLB Total Revenue

Valuation Drivers: Backlog, Government Contracts, and Scalability

Rocket Lab’s $1.07 billion backlog—up 60% from Q1 2024—offers visibility into future revenue. Government programs like NSSL and the U.S. Air Force’s hypersonic transport experiment (scheduled for 2026) provide stable demand. Meanwhile, its Mynaric acquisition and standardized products aim to leverage economies of scale in satellite manufacturing, which currently suffers from production bottlenecks.

The P/S multiple, while high, reflects investor optimism about these tailwinds. Analysts project 41% annual revenue growth over the next three years, far outpacing the aerospace sector’s 8% average. Even at 23.9x P/S, Rocket Lab’s growth trajectory justifies some premium—if executed.

Risks to Consider

  • Cash Burn: With $517 million in cash as of March 2025, Rocket Lab must manage Neutron’s development without overextending. A delayed first launch or cost overruns could strain liquidity.
  • Margin Pressures: Sequential revenue declines and reliance on lower-margin Electron launches may persist until Neutron scales.
  • Production Challenges: Mynaric’s historical underperformance requires Rocket Lab’s swift intervention to meet demand.

Conclusion: A High-Risk, High-Reward Bet

Rocket Lab’s valuation is undeniably aggressive, but its strategic progress merits attention. The backlog’s growth, government contracts, and diversification into space systems suggest a path to long-term profitability—if Neutron succeeds and production bottlenecks ease.

Ask Aime: Is Rocket Lab's (RKLB) stock a good long-term investment?

RKLB Trend

For investors, the trade-off is clear: tolerate short-term volatility for exposure to the space economy’s growth. With a backlog worth over $1 billion and a foothold in national security launches, Rocket Lab’s fundamentals align with its valuation for those willing to ride out execution risks. While the P/S ratio is a red flag for conservative investors, bulls can argue it’s a premium paid for first-mover advantage in an industry where winners take all.

In short, Rocket Lab remains a buy for long-term investors, but the journey will be bumpy. The stars may align—if the company can light its own rocket.

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makeammends
05/09
"Rocket Lab's stock is like Michael Scott's rocket launch—full of potential but with fiery risks. The P/S ratio is stratospheric, but if Neutron and MYNAric hit the mark, they might just dominate the space market. Investors, buckle up for a bumpy ride!
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Interesting_Mix_3535
05/09
Cash burn is a real risk. Rocket Lab needs to manage Neutron's dev without overextending. Liquidity's a delicate balance.
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Interesting_Mix_3535
05/09
MYNAric acquisition looks smart. Standardized products might just be the ticket to scaling and higher margins. Rocket Lab's playing 4D chess.
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LonnieJaw748
05/09
41% annual growth projected? That's some rocket fuel for your portfolio. Keep an eye on those government contracts.
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DutchAC
05/09
RLabs might be pricey, but the space economy isn't slowing down. Are you in for the long haul? 🚀
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CorneredSponge
05/09
P/S ratio is a turn-off for some, but in a booming sector like space, first-movers get the gold.
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Far_Sentence_5036
05/09
I'm holding a small position in $RKLB. Betting on their space systems division to deliver. Patience is key here.
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Versace__01
05/09
Neutron rocket could be a game-changer. If it delivers, RLabs might justify this valuation madness.
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SnowShoe86
05/09
MYNAric acquisition is a smart move. Scaling their tech could bring in serious margins. Long-term play, folks.
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Particular-Ad-8433
05/09
$RKLB backlog is solid, but cash burn is a real concern. Watching wallets and the market closely.
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Blackhole1123
05/09
Rocket Lab's Neutron rocket could be a game-changer. 🚀 If it delivers, the stock could soar. Worth the risk for long-term gains.
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Shot_Ride_1145
05/09
$RKLB's P/S ratio is eye-watering, but growth might justify it. Analysts see big things ahead. Gotta love a good space bet.
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jvdr999
05/09
Rocket Lab's got potential, but that P/S ratio makes me 🤔. High risk, high reward, as they say.
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THenrich
05/09
@jvdr999 True, P/S ratio's steep. But Rocket Lab's got gov contracts & diversifying. High risk, but potential's there.
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twiggs462
05/09
Diversification into space systems is clutch. Not just a launch company anymore. Eyes on satellite manufacturing bottlenecks.
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aj_cohen
05/09
@twiggs462 True, Rocket Lab expanding beyond launches. Satellite manufacturing could be a big deal.
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LoinsSinOfPride
05/09
@twiggs462 Diversification's cool, but bottlenecks suck.
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serkankster
05/09
Holy!Those $TSLA whale-sized options block were screaming danger! � Closed positions just in time profiting more than $352
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