Why I'm Cautious On Rocket Lab Despite Its Strong Growth Story

2025-02-15 07:04:42 ET

Summary

• Rocket Lab's Q3 2024 revenue grew 55% YoY, but the current price of $28.30 appears unsustainable given mounting losses.
• My valuation analysis suggests a fair value range of $16.20-$18.80, indicating a 62% premium to midpoint value.
• While gross margins improved to 26.7%, widening operating losses of $51.9M raise concerns.
• I recommend trimming exposure until operational metrics improve or a better entry point emerges.

Executive Summary

After I spent some time looking at Rocket Lab's ( RKLB ) latest finances and position in the market dynamics, I believe that, despite the tremendous execution of the company, the current valuation of $28.30 appears unsustainable for now . While doing my research, I found losses mounting and a staggering 38x P/S Ratio creating sufficient cessation in my mind to doubt the stock's near-term prospects. My detailed DCF analysis estimates a base case valuation of $16.20 per share , with a range of $12.40 to $33.00 , accounting for various growth and execution scenarios. Sticking with optimistic assumptions about market growth and margin expansion, doing the math to justify a trading price current nearly at the bull case valuation range proved to be a challenge. I, too, respect the strength of the revenue growth and the strategic positioning of the company. The potent combination of expensive valuation multiples and significant cash burn leads toward the conclusion to trim exposure at these levels. ...

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