Rocket Lab Just Had the Worst Week in Its History. Here's What I'd Do With the Stock Now.

Rocket Lab's (NASDAQ: RKLB) stock price declined 23% from Oct. 12 to Oct. 16, marking its worst single-week decline since its public debut five years ago. Let's see what caused Rocket Lab's stock to fizzle out -- and if that pullback represents a buying opportunity.

A double whammy of bad news

Rocket Lab produces reusable orbital rockets for NASA and other organizations. It's successfully launched its Electron rockets 97 times to deploy over 268 satellites. The Electron carries much smaller payloads than SpaceX's (NASDAQ: SPCX) Falcon rockets.

Rocket Lab originally planned to launch its larger Neutron rocket, which was designed to directly compete against SpaceX's Falcon 9, by the end of 2026. But on Oct. 14, it postponed the Neutron's first launch to 2027, due to a defect in its carbon-composite tank.

That wasn't the first time Rocket Lab delayed the Neutron. Back when it unveiled the Neutron in 2021, it planned to launch its first rocket by 2024. But it eventually pushed that target back to 2025 and 2026 -- so its latest delay to 2027 raises some bright red flags.

That same week, Ligado Networks sent a letter to the Federal Communications Commission (FCC) to challenge Rocket Lab's planned takeover of Iridium (NASDAQ: IRDM). Ligado argues that Iridium, which tried to block its partnership with AST SpaceMobile (NASDAQ: ASTS), regularly uses petitions to delay competing satellite services. If the FCC scrutinizes that $8 billion deal, it could stunt Rocket Lab's expansion into an end-to-end space services company.

Did investors overreact to those setbacks?

Those setbacks were disappointing, but Rocket Lab only generated 19% of its revenue from its Launch Services segment, which handles its Electron and Neutron rockets, in its latest quarter.

The remaining 81% came from its Space Systems segment, which produces satellite components, solar panels, and complete spacecraft buses. Its acquisition of Iridium, which it expects to close in 2027, will expand that segment with a global satellite network.

Rocket Lab is still generating plenty of revenue from its Electron launches, and it's already locked in major government and commercial customers for the Neutron. It's also securing more satellite construction contracts from the U.S. Space Development Agency and other clients.

That's why Rocket Lab's backlog grew to $2.36 billion at the end of the second quarter. That's more than double its projected revenue of $959 million for 2026. Analysts expect its revenue to rise 38% to $1.33 billion in 2027 and 31% to $1.74 billion in 2028 -- but that outlook depends on the successful introduction of the Neutron and its acquisition of Iridium.

Does Rocket Lab's pullback represent a buying opportunity?

With a market cap of $30.5 billion, Rocket Lab still trades at 32 times this year's sales. It's also expected to stay unprofitable until 2028. That high valuation and red ink should limit its upside potential as long as high interest rates drive investors toward more conservative investments.

Intense competition from SpaceX -- which already launches more rockets and satellites -- could also keep contrarian investors away from Rocket Lab, AST SpaceMobile, and other smaller space stocks. Therefore, investors shouldn't be too surprised that two setbacks caused Rocket Lab's stock to shed over a fifth of its value in just a week. They should also realize it could still get cut in half in this market before it attracts more value-seeking investors.

Rocket Lab could still grow significantly over the next few years, but investors shouldn't pay the wrong price for the right stock. I'd wait for the company to make clearer progress toward its first Neutron launch -- and close its acquisition of Iridium -- before buying the stock.

Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Rocket Lab. The Motley Fool has a disclosure policy.