Rocket Lab's Undervalued Opportunity: Time to Buy Below $27?

The stock market is littered with companies that trade at discounts to their true potential, and Rocket Lab (NASDAQ: RKLB) might currently be one of them. As of May 23, 2025, the company's shares closed at $25.42, nearly $2 below the $27 threshold that could unlock significant upside for investors. With the smallsat launch market booming, Rocket Lab's cost advantages, recent contract wins, and strategic reorganization suggest it's undervalued—if investors can stomach near-term risks like liquidity pressures and regulatory challenges. Let's dive in.

The Smallsat Boom: Rocket Lab's Tailwind

The satellite industry is undergoing a seismic shift. Traditional large, expensive satellites are being replaced by swarms of small, affordable satellites—a trend that's accelerating demand for frequent, cost-effective launches. Rocket Lab's Electron rocket, capable of delivering payloads to orbit for $7.5 million per launch, is a fraction of the price of SpaceX's Falcon 9 ($67 million) or United Launch Alliance's Atlas V ($200+ million). This pricing power positions Rocket Lab to dominate the smallsat launch niche, which is projected to grow at a 20% CAGR through 2030.

Recent Contract Wins and Revenue Growth

Rocket Lab's Q1 2025 results provided a glimpse of its potential. Despite a $60.6 million net loss, revenue surged 32% YoY to $122.57 million, outpacing estimates. The company also secured $130 million in new contracts, including a deal with the U.S. Space Force for dedicated launches. This bodes well for Q2 guidance of $130–$140 million in revenue, which, if met, could signal operational consistency.

Why $27 Is a Crucial Level

The $27 price tag isn't arbitrary. At current levels, Rocket Lab's market cap of $11.9 billion assumes a company struggling to scale profitability—a narrative that ignores its long-term growth trajectory. Analysts' mixed ratings (average: “Moderate Buy,” consensus target: $23.50) understate the opportunity. Notably, Needham & Co. and KeyCorp have $28 price targets, suggesting the stock could rise by 10%+ if it meets Q2 expectations.

The Risks: Liquidity and Regulatory Hurdles

The negatives are clear. Rocket Lab's cash burn remains stubbornly high, with an adjusted EBITDA loss of $29.96 million in Q1. Institutional investors hold 71.78% of shares, creating potential volatility if big funds pivot. Additionally, its reorganization into a holding company (effective June 1, 2025) introduces regulatory uncertainty.

Meanwhile, competition isn't standing still. Relativity Space and Firefly Aerospace are nipping at Rocket Lab's heels with cheaper rockets, while SpaceX's Starship could undercut pricing in the long term.

The Bottom Line: A Calculated Gamble

Rocket Lab is a classic “story stock” with high upside for those willing to bet on smallsat adoption outpacing execution risks. The $25.42 price tag offers a margin of safety, especially with shares trading below their 200-day moving average ($22.71).

Investors should ask themselves: Can Rocket Lab's cost leadership and contract momentum offset its cash burn? If the answer is yes—and given the $27 threshold looms—this could be a once-in-a-decade entry point.

Final Call: Buy the Dip, but Set a Stop

The math here is compelling. Rocket Lab's valuation is too low for a company with such a strategic edge in a $20 billion+ market. Buy now, but set a stop at $22.71 (the 200-day MA) to limit losses if the narrative sours. The upside? A $28 target implies a 10% gain, but if smallsat demand explodes, this stock could double.

In short: The risk-reward favors buyers below $27.

Disclosure: This article is for informational purposes only. Always conduct your own research or consult a financial advisor before making investment decisions.