RKLB is overvalued relative to fair value; maintain hold rating and wait for a better entry price.

Rocket Lab remains heavily focused on getting the vehicle to the launch pad in the fourth quarter of 2026. This vehicle is the Neutron, which is still under development and facing a slight delay.

However, the company recorded significant revenue growth in its most recent quarter , achieving growth in both of its sectors. Its overall profit margins are also improving. Investors are wondering whether they should buy Rocket Lab shares despite the Neutron development being delayed to the fourth quarter of 2026.

Revenues have risen significantly in recent years, reaching 769 million during the past twelve months. This represents an increase from approximately 100 million in mid-2022. Furthermore, the company announced a massive backlog of orders that rose significantly to $2.36 billion.

You can compare that to its revenue of 770 million over the past twelve months , and you will see that the company has contracts that cover 3 to 4 years of revenue. This backlog of contracts is increasing, growing at a faster pace than the company's ability to execute.

Therefore, it is still in the early stages of development. This company's potential is much greater than it is today. But currently, the company is losing money on net profit, and the cash flow from operations to sales ratio is negative at 29%.

Although this indicator improved until January 2025, the improvement has slowed.

Of course, if you manage to launch Neutron in the fourth quarter of 2026 and beyond, the research and development costs for that technology will decrease and you will begin to reap the rewards of the investments you have already made.

However, it still has many research and development investments planned, and the company is likely to continue to make these investments as long as it sees opportunities in the future .

As an investor, this should please you. This is something you would want from a company like this. You want them to continue investing as long as they see a great opportunity on the horizon.

The growth prospects in this sector are significant. It is almost impossible to estimate just how huge the potential growth prospects are for this type of technology.

However, it is encouraging to see some of its profit margins improving. For example, the company recorded a gross profit margin of 36% in its most recent quarter, which was better than the 33% that the management team had predicted .

You can also look at the returns on invested capital, which have improved significantly to -7.5%, up from -40% in 2022.

So, although it is still far from being a sustainable company without needing to ask for capital from investors, it is making tangible improvements and completing key milestones, which gives investors confidence in its future.

For a company like Rocket Lab, achieving milestone goals is extremely important; Because every time it achieves a goal, investor confidence increases , allowing them to provide financing at a lower cost of capital.

Now, the company is by no means in a desperate situation . The company has approximately $2.4 billion in cash on hand, so even if it continues to lose cash in its net income at the level we have seen in recent quarters.

It has enough cash flow for several quarters to come to enable it to reach these goals.

Certainly, reaching the launch stage of the "Neutron" rocket from the launch pad in the fourth quarter of 2026 will be a big step forward, and another important step towards reducing the cost of capital.

Looking at the market price was another story, wasn't it? There was a lot of euphoria and excitement surrounding space sector stocks at the time when SpaceX was entering the market in the most popular IPO in stock market history, and we saw space companies take advantage of those positive winds.

Rocket Lab's stock, in particular, saw a jump from about $57 per share to $150 per share, nearly tripling its price in two months. Since then, that enthusiasm has evaporated, so to speak, and the momentum of stocks has declined, and they are now trading at levels close to what they were before that hype and enthusiasm. It is now at around $60 per share .

Of course, if you recall, I made several videos warning investors against being swept away by media hype, not only regarding Rocket Lab, but also regarding SpaceX . I have warned investors to avoid this hype and euphoria; Because it never ends—well, I shouldn't say it never ends , but it rarely ends well for investors when they get carried away by the hype, the euphoria, and all that excitement.

Just look at recent years. You don't even have to study history for hundreds of years like me, do you? I don't mean to imply that I've lived for hundreds of years, but I've studied the history of markets going back hundreds of years, and when you get carried away by the noise, euphoria, and excitement, it rarely ends well for investors.

But you don't have to look too far , do you? Just look at the past seven years, right? Going back to 2019 only. Look at the meme stock craze, the non- fungible token (NFT) craze , and some of the cryptocurrency craze .

Not all of those experiments ended, or rather many of them did not end well for investors. Therefore, this is something to avoid whenever you see this kind of noise and euphoria.

This was another example of that. I hope you have watched some of my videos and avoided many of these disasters.

For the year, the stock has fallen by 10%. It has seen ups and downs, but at the moment it is down 10%. Ratings have returned to the levels they were at before all the hype and excitement.

It is currently trading at a forward price-to-sales multiple of 27, which is roughly the same level it was at before the hype and excitement surrounding SpaceX drove the stock to a price- to-sales multiple of 65.

But at this valuation, does it make sense for high- risk investors to get in and buy Rocket Lab stock? Well, I also wanted to look at the valuation using my discounted cash flow model, and according to it, at $62 per share, the price is still much higher than my fair value estimate of $22.

Now, for a stock like Rocket Lab, which is extremely difficult to value, I'm allocating a larger margin of safety, and even with a larger margin of safety applied, the stock still seems overvalued at these levels.

It's a very exciting company, and one of the most innovative in the world, but if you're a high- risk investor and thinking about getting in, I'd advise waiting for a better opportunity.

I will wait for a better price, and there are other high- risk-reward stocks that are better to own than Rocket Lab. So today I will reiterate my “ hold” rating of the company, noting that there may be better stocks in this category—and by category I mean high-risk, high-reward stocks, not just in the space sector, but in general— that I would prefer to own instead of Rocket Lab.