Why Rocket Lab Stock Is Plummeting Today

Shares of Rocket Lab Corp (RKLB -11.19%) are falling on Wednesday, down 11% as of 3:24 p.m. ET. The drop comes as the S&P 500 was flat, and the Nasdaq Composite gained 0.5%.

The SpaceX competitor and rocket builder’s stock flew higher yesterday after it announced the completion of a new launch pad. Today, shares are falling as investors reassess its substantial valuation.

Rocket Lab stock has been on a ride this year

Rocket Lab has garnered a lot of attention from retail investors, helping drive shares more than 600% higher in the last year. That’s because Rocket Lab is seen as a serious contender that could challenge Elon Musk’s SpaceX for dominance in the space exploration market. A key element in its ability to do so is the successful development of Neutron, its heavy-lift rocket that can compete with SpaceX for major payloads.

The company announced yesterday that the Neutron launch pad was complete, helping to give investors confidence that the company is close to a successful launch.

RocketLab’s valuation weighs on the stock

The company is now valued at nearly $22 billion, which is pretty hefty for a company with annual sales of about $500 million and operating in the red.

The company does have momentum behind it and a substantial backlog, but it still lost almost $200 million in the last 12 months before taxes, interest, or depreciation are taken into account — and considering it builds rockets, its depreciation costs are substantial. The company will continue to have to drive development and growth through expensive debt or stock dilution.

The opportunity is exciting, but for my taste, paying $22 billion for a company burning cash at this rate requires more faith than fundamentals. The opportunity is massive, but so is the risk of a hard landing.