Why Rocket Lab's Momentum Collapse Reveals a Harsh Market Truth

The euphoria surrounding Rocket Lab (NASDAQ: RKLB) has evaporated faster than rocket fuel. After nearly tripling in early 2025 on anticipation of its Neutron launch, the aerospace company’s stock has entered a brutal correction—plunging 38% in just over a month to trade below $43 per share.

The Valuation Trap Nobody Wants to Discuss

Before diving into what went wrong, let’s acknowledge what made Rocket Lab so attractive in the first place. The company isn’t a shell corporation or a fantasy play. Since 2017, Rocket Lab has successfully launched its Electron rocket 75 times with approximately 93% success rate. The company has transformed from chronic losses into gross profitability, boasting a 32% gross margin according to S&P Global Market Intelligence. Revenue has expanded 15-fold over five years.

Yet here’s the uncomfortable reality: even after a $26 stock price collapse, Rocket Lab still commands a valuation that defies conventional logic. With $555 million in trailing annual sales against a market cap near $23 billion, the company trades at 40 times sales. For context, that’s extraordinarily expensive for an aerospace firm with zero profitability and a delayed flagship product.

When Momentum Becomes the Only Fundamentals Matter

Wall Street’s narrative around Rocket Lab through most of 2025 resembled cheerleading more than analysis. Analysts maintained bullish ratings as shares climbed toward $74—a position that began looking precarious when the company’s market valuation reached 63 times annual revenue pre-correction. The unstated thesis was simple: growth trajectory and future promise justify current price, regardless of whether the company actually generates profits today.

This approach works splendidly during momentum phases. It catastrophically fails when momentum fractures.

CEO Peter Beck’s November admission that Neutron’s inaugural launch would slip into early 2026 supplied the crack in confidence. But that delay merely exposed a deeper vulnerability: Rocket Lab’s stock had become entirely dependent on execution perfection. Any deviation—whether technical delays, market dynamics shifts, or simple profit-taking by early investors—would trigger a reckoning.

The Profitability Question Nobody Can Answer Yet

Here’s what the numbers tell us. Rocket Lab projects reaching GAAP profitability and positive free cash flow by 2027, contingent on Neutron achieving its aggressive launch cadence targets. A year-long delay in Neutron translates directly into a year-long delay in those profitability milestones. For a company valued primarily on future cash generation rather than current earnings, that’s not a minor inconvenience—it’s potentially devastating to the investment thesis.

The question investors now face: Is $43 per share genuinely cheap, or merely cheaper than $74? Given the company remains unprofitable and operational milestones have slipped, current valuations still reflect substantial optimism. Until Rocket Lab demonstrates consistent profitability or the stock price contracts further, the purchase case remains questionable despite the dramatic 38% decline.

The Difference Between Catching Falling Knives and Value Investing

Rocket Lab’s operational fundamentals remain intact. The company will almost certainly succeed with Neutron eventually. Its commercial launch business continues expanding. The long-term vision of reusable orbital-class rockets commanding a massive addressable market remains unchanged. These aren’t worthless qualities.

However, attractiveness of a business and attractiveness of a stock at a given price are entirely different questions. Momentum-driven rallies create situations where price disconnects wildly from fundamentals. Corrections don’t automatically eliminate that disconnect—they simply reduce it by degrees.

For existing shareholders, holding through volatility appears reasonable given faith in the business. For prospective buyers, waiting for either meaningful profitability announcements or further valuation compression seems the prudent course. The stock may have fallen steeply, but it hasn’t yet reached valuation levels that make it obviously compelling for new capital deployment.