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Why Rocket Lab Stock Dropped on Good News Today


Rocket Lab’s latest contract win doesn’t seem to be as big news as it might have been.

Rocket Lab (RKLB -2.79%) keeps raking in contracts. Yesterday, the company announced that NASA has hired it to propose a solution to the space agency’s troubled Mars Sample Return (MSR) project — ideally, one that will cost less than $11 billion and take less than 16 years to complete.

That’s the good news. The bad news came a few hours later: Rocket Lab just announced it will report Q3 financial results on Nov. 12, and its stock fell 2.9% through 3:25 p.m. ET.

Good news first

Let’s start with the good news. For the past three years, NASA’s Perseverence rover has been collecting soil and air samples on Mars for eventual retrieval by a robotic spacecraft. NASA suspended work on MSR back in April, however, after studies suggested the project could cost $8 billion to $11 billion and couldn’t be completed before 2040.

Rocket Lab thinks it can accomplish the mission both cheaper and sooner. NASA has, therefore, awarded it a contract (of unspecified value) to develop and propose a “simplified, end-to-end mission concept that would be delivered for a fraction of the current projected program cost and completed several years earlier than the current expected sample return date in 2040.”

Is Rocket Lab stock a buy?

While it’s nice to win a contract, the lack of a price on the contract suggests this may not be a big deal for investors. (Although if Rocket Lab ends up charging $7.99 billion and winning the job, that would obviously be a horse of a different color).

In the meantime, investors must assume that the value of a contract just to study the problem isn’t material. They must also assume it won’t change analyst forecasts that see Rocket Lab’s per-share losses growing more than 37% (to $0.11 per share) in Q3, despite revenue growing 51% to $102.3 million.

Rocket Lab may be successful as a rocket company, but to be great investment, it must eventually earn a profit. That’s probably not going to happen in November.



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