Rocket Lab (RKLB) continues to have multiple, strong, positive, potential catalysts, and a major contract that the firm recently received from the U.S. Space Force shows that the federal government still has faith in the company, leaving it well-positioned to continue to increase its revenue from Washington meaningfully going forward.
However, a recent, cautious comment attributed to the company’s CFO, Adam Spice, along with Spice’s decision to sell a large amount of RKLB stock, have made me more cautious on the shares’ outlook. Given these developments, along with the company’s very high valuation, I believe that investors should consider holding their shares of RKLB but refrain from buying additional units of the name.
Positive Catalysts and the New Contract
As I noted in a previous column on Rocket Lab, the firm’s Neutron rocket, which is supposed to be launched for the first time this year, could enable the company to collect billions of dollars of revenue from the Pentagon. Also importantly, the company has said that it’s very well-positioned to benefit from Golden Dome, ” the Trump administration’s massive missile defense initiative.”
Meanwhile, Rocket Lab’s new $816 million contract from the Space Force involves developing “satellites equipped with advanced missile warning, tracking, and defense sensors,” the company reported.
Two Reasons to Be More Cautious
According to Space Intel Report, Rocket Lab CFO Adam Spice recently said that the company would not make certain investments until the Neutron rocket is shown to be reusable. As I pointed out in my previous column, Neutron is key to the company’s aspirations to become profitable in 2027. And making rockets reusable can reduce “launch costs by a factor of 10 or more.” Therefore, if Neutron is not reusable, in accordance with the firm’s plan, then Rocket Lab may miss its target of becoming profitable in 2027, causing RKLB stock to sink. And Spice’s statement indicates that the firm has significant doubts about the rocket’s reusability.
Also making me more cautious on RKLB stock is Spice’s decision to sell 1.387 million of the firm’s shares on Jan. 5. After the sale and the exercise of an option to buy 731,330 shares for $1.09 per unit, the CFO owns nearly 1.36 million shares of the company. In other words, he reduced his holdings of the stock by over 50%. Spice’s sale of such a large number of shares could indicate that he is somewhat unsure about the firm’s medium-term outlook.
Valuation and the Bottom Line on RKLB
Rocket Lab’s shares are now changing hands at a huge price-sales ratio of 77 times. As a result, any stumble by the company, including issues with making the Neutron rocket reusable, are likely to cause the name to plunge. In that context, Spice statement and share sale make buying RKLB stock too risky at this point.
*This article is intended to be informational only; it is not financial advice.
