Hook & thesis
Rocket Lab's recent Neutron tank rupture is headline risk, but market overreaction has opened a tactical buy window. The stock pulled back on engineering uncertainty; today it is trading at $73.54 after a strong intraday bounce. We upgrade RKLB to Buy as an opportunistic trade: the company has an $816 million U.S. defense contract, more than $1 billion of backlog, a clear path to profitability by 2027 in public forecasts, and a capital structure that can weather a development delay.
Put simply: technical risk on a single hardware failure is real, but the business has diversified revenue drivers now - launch cadence, spacecraft manufacturing and a major defense award that should add roughly $200 million annually over multiple years. For traders willing to accept event risk, this is a mid-term trade where potential upside from contract conversion and resumed Neutron development justifies a Buy stance.
What Rocket Lab does and why the market should care
Rocket Lab operates two core segments: Launch Services - providing dedicated and rideshare rocket launches - and Space Systems - which designs, manufactures and operates spacecraft and satellite components. The company's mix matters: Launch Services produce near-term revenue through frequent missions, while Space Systems offers higher-margin, recurring work when government and defense customers sign multi-year contracts.
Investors should care because Rocket Lab is transitioning from a launch-centric revenue profile to a diversified space-systems firm with sizeable defense bookings. The U.S. Space Development Agency contract (announced 02/02/2026) for 18 missile-defense satellites is a game changer: it is Rocket Lab's largest contract to date and should add steady revenue while reducing reliance on single-launch outcomes.
Hard numbers that matter
- Market cap: $38.62 billion.
- Enterprise value: ~$38.25 billion and EV/Sales around 69x on reported figures today.
- Profitability metrics are negative today: EPS is about -$0.37 and return on equity sits near -15%.
- Free cash flow was negative at -$231.3 million, but debt is modest with a debt/equity ratio near 0.34 and cash reported around $1.95 per share.
- Backlog and growth: public articles cite a backlog north of $1 billion and analyst projections that revenue could double from roughly $600 million in 2025 to $1.29 billion in 2027, with the defense contract adding roughly $200 million per year over four years.
Valuation framing
The headline: Rocket Lab is priced like a multi-year growth compounder. With a market cap near $38.6 billion and EV/Sales roughly 69x on current reported sales, the stock is richly valued versus any near-term revenue base. Even using the projected 2027 revenue of $1.29 billion, the company's EV/Sales would fall only to roughly 29-30x - still elevated but more defensible for a company that expects to be profitable and is winning large defense programs.
Historical volatility is instructive: the 52-week range spans $14.71 to $99.58, showing how narrative swings (program success, test failures, IPO chatter like SpaceX) drive big moves. In that context, today's price near $73.54 sits below the recent high but well above earlier lows; the trade is therefore about timing exposure to the recovery of confidence around Neutron development and backlog conversion rather than a value play in the traditional sense.
Catalysts to drive the trade
- Neutron test program updates - clear engineering fixes, test re-scheduling and successful subsequent static tests or tank redesigns would materially derisk the growth narrative.
- Defense contract execution - delivery milestones and revenue recognition against the $816M contract will provide recurring revenue visibility.
- Launch cadence - consistent Electron/Neutron launch frequency and improved manifest conversion will support revenue and margins.
- Profitability guidance progress - quarterly signs of margin improvement and positive free cash flow trends ahead of the 2027 profitability target.
- Macro/market flows - reduced noise from potential SpaceX IPO chatter would help rotate capital back to public space names.
Trade plan (actionable)
We recommend a mid-term trade: enter at $72.00, stop loss at $62.00, target at $95.00. Horizon: mid term (45 trading days). Rationale: enter slightly below today's intraday price to allow for immediate volatility; the $62 stop limits downside to company-specific engineering or contract execution shocks while leaving room for normal launch cadence swings. The $95 target is below the 52-week high of $99.58 and represents capturing a rebound in sentiment as Neutron fixes and defense revenue milestones are confirmed.
Why 45 trading days? That's enough time for the company to provide technical updates and for the market to re-price program risk, but short enough to avoid longer-dated macro events or a broader space-stock rotation tied to large IPOs. If Neutron progress accelerates quickly, consider tightening stops or layering out into strength; if progress stalls, respect the stop and re-evaluate after the next milestone.
Technical & market context
Technicals show a mixed picture: price is above the 50-day simple moving average (~$70.72), but below short-term EMAs and with a neutral RSI (~44.8). Short interest has declined meaningfully from prior peaks (settlement short interest recently ~38 million shares vs. ~60 million months earlier), which reduces the likelihood of a violent short squeeze but also shows market participants are repositioning. Volume is elevated, reflecting attention to the stock during the Neutron incident and contract headlines.
Risks and counterarguments
- Technical program risk: Continued Neutron development problems could delay entry to service, increase costs, and force schedule slips that weigh on the stock. A single hardware failure can cascade into multi-quarter delays.
- Valuation compression risk: The shares price in substantial future growth; if revenue or margin improvements slip, multiple contraction could erase gains quickly.
- Cash burn and capital needs: Rocket Lab is not yet free-cash-flow positive and posted negative FCF of roughly $231 million recently. Further delays or higher-than-expected capex could require more capital issuance, diluting shareholders.
- Competition and market share: Established incumbents and potential new entrants (including broader industry consolidation around SpaceX if it IPOs) could pressure margins and contract pricing.
- Program loss or political risk: The cancellation of NASA's Mars Sample Return program by Congress (reported 01/31/2026) shows how political decisions can wipe out large potential revenue streams; similar outcomes could hinder future military or civil programs.
- Macro and liquidity risk: Broader market rotations out of speculative high-multiple names — or a SpaceX IPO that draws investor interest away — could lead to short-term weakness irrespective of Rocket Lab progress.
Counterargument: You could argue RKLB is simply too richly valued to own until proof of Neutron reliability and consistent positive free cash flow. That is a fair point: valuation assumes near-perfect execution over the next two years.
Why we still buy - and what would change our mind
We accept the counterargument but weigh it against three offsetting factors: (1) the $816M defense contract adds durable, multi-year revenue that is less sensitive to launch cadence; (2) modest leverage (debt/equity ~0.34) and meaningful backlog provide time to fix engineering issues without immediate solvency pressure; (3) the stock has already retraced from its recent high, creating a window where positive technical updates can produce asymmetric upside versus downside if stops are respected.
What would change my mind to Neutral or Sell: a public update showing a multi-month delay to Neutron without a clear engineering remedy, material additional capital raises that significantly dilute shareholders, or missed delivery milestones on the defense contract. Conversely, accelerated Neutron testing success and evidence of margin expansion would strengthen conviction and justify raising the target or extending the time horizon.
Conclusion
Rocket Lab's Neutron setback is painful but not fatal to the investment thesis. The company now has more predictable revenue levers via Space Systems and the SDA contract, moderating downside and creating a tactical buying opportunity. For traders comfortable with program-level event risk, enter at $72.00, use a hard stop at $62.00, and target $95.00, with a horizon of mid term (45 trading days). Manage size and respect the stop - this is a Buy driven by event-to-catalyst recovery rather than a bargain-priced value play.