Rocket Lab (RKLB)

Aerospace and defense company Rocket Lab (NASDAQ:RKLB) announced better-than-expected revenue in Q3 CY2025, with sales up 48% year on year to $155.1 million. Guidance for next quarter’s revenue was better than expected at $175 million at the midpoint, 1.7% above analysts’ estimates. Its GAAP loss of $0.03 per share was 71.3% above analysts’ consensus estimates.

Company Overview

Becoming the first private company in the Southern Hemisphere to reach space, Rocket Lab (NASDAQ:RKLB) offers rockets designed for launching small satellites.

Aerospace companies often possess technical expertise and have made significant capital investments to produce complex products. It is an industry where innovation is important, and lately, emissions and automation are in focus, so companies that boast advances in these areas can take market share. On the other hand, demand for aerospace products can ebb and flow with economic cycles and geopolitical tensions, which can be particularly painful for companies with high fixed costs.

Competitors offering similar products include Space X (private), Astra (NASDAQ:ASTR), and Virgin Orbit (NASDAQ:VORB).

A company’s long-term sales performance is one signal of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Thankfully, Rocket Lab’s 85.1% annualized revenue growth over the last five years was incredible. Its growth beat the average industrials company and shows its offerings resonate with customers, a helpful starting point for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Rocket Lab’s annualized revenue growth of 53.2% over the last two years is below its five-year trend, but we still think the results suggest healthy demand.

This quarter, Rocket Lab reported magnificent year-on-year revenue growth of 48%, and its $155.1 million of revenue beat Wall Street’s estimates by 2.1%. Company management is currently guiding for a 32.2% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 47.8% over the next 12 months, a deceleration versus the last two years. Despite the slowdown, this projection is healthy and implies the market is baking in success for its products and services.

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Rocket Lab’s high expenses have contributed to an average operating margin of negative 57.6% over the last five years. Unprofitable industrials companies require extra attention because they could get caught swimming naked when the tide goes out.

On the plus side, Rocket Lab’s operating margin rose over the last five years, as its sales growth gave it operating leverage. Still, it will take much more for the company to reach long-term profitability.

Rocket Lab’s operating margin was negative 38% this quarter.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Although Rocket Lab’s full-year earnings are still negative, it reduced its losses and improved its EPS by 30.8% annually over the last five years. The next few quarters will be critical for assessing its long-term profitability. We hope to see an inflection point soon.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Rocket Lab, its two-year annual EPS declines of 4.1% mark a reversal from its (seemingly) healthy five-year trend. These shorter-term results weren’t ideal, but given it was successful in other measures of financial health, we’re hopeful Rocket Lab can return to earnings growth in the future.

In Q3, Rocket Lab reported EPS of negative $0.03, up from negative $0.10 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Rocket Lab to improve its earnings losses. Analysts forecast its full-year EPS of negative $0.38 will advance to negative $0.28.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Rocket Lab’s demanding reinvestments have drained its resources over the last five years, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 52.9%, meaning it lit $52.89 of cash on fire for every $100 in revenue.

Taking a step back, an encouraging sign is that Rocket Lab’s margin expanded during that time. In light of its glaring cash burn, however, this improvement is a bucket of hot water in a cold ocean.

Rocket Lab burned through $69.44 million of cash in Q3, equivalent to a negative 44.8% margin. The company’s cash burn increased from $41.93 million of lost cash in the same quarter last year.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Rocket Lab has shown solid business quality lately, it struggled to grow profitably in the past. Its five-year average ROIC was negative 53.5%, meaning management lost money while trying to expand the business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Rocket Lab’s ROIC averaged 2.3 percentage point increases each year. its rising ROIC is a good sign and could suggest its competitive advantage or profitable growth opportunities are expanding.

One of the best ways to mitigate bankruptcy risk is to hold more cash than debt.

Rocket Lab is a well-capitalized company with $976.7 million of cash and $516.6 million of debt on its balance sheet. This $460.1 million net cash position gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

It was good to see Rocket Lab beat analysts’ EPS expectations this quarter. We were also glad its revenue outperformed Wall Street’s estimates. On the other hand, its EBITDA missed and its EBITDA guidance for next quarter fell short of Wall Street’s estimates. Overall, this print was mixed but still had some key positives. The stock traded up 7.3% to $55.72 immediately after reporting.

Updated: December 4, 2025 at 10:29 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Rocket Lab.

Rocket Lab isn’t a bad business, but we’re not clamoring to buy it here and now. First off, its revenue growth was exceptional over the last five years. And while Rocket Lab’s relatively low ROIC suggests management has struggled to find compelling investment opportunities, its rising cash profitability gives it more optionality.

Rocket Lab’s forward price-to-sales ratio is 30.3x. The market typically values companies like Rocket Lab based on their anticipated profits for the next 12 months, but it expects the business to lose money. We also think the upside isn’t great compared to the potential downside here - there are more exciting stocks to buy.

Wall Street analysts have a consensus one-year price target of $65.67 on the company (compared to the current share price of $49.47).