3 Reasons to Avoid RKLB and 1 Stock to Buy Instead

What a fantastic six months it’s been for Rocket Lab. Shares of the company have skyrocketed 69.6%, hitting $75.56. This was partly due to its solid quarterly results, and the performance may have investors wondering how to approach the situation.

Is now the time to buy Rocket Lab, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.

Why Is Rocket Lab Not Exciting?

We’re happy investors have made money, but we're swiping left on Rocket Lab for now. Here are three reasons why RKLB doesn't excite us and a stock we'd rather own.

1. Operating Losses Sound the Alarms

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

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. It’s hard to trust that the business can endure a full cycle.

2. EPS Trending Down

Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.

Rocket Lab’s full-year EPS turned negative over the last three years. We’ll keep a close eye on the company as diminishing earnings could imply changing secular trends and preferences.

3. Cash Burn Ignites Concerns

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

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 53%, meaning it lit $52.97 of cash on fire for every $100 in revenue.

Final Judgment

Rocket Lab isn’t a terrible business, but it doesn’t pass our bar. Following the recent rally, the stock trades at $75.56 per share (or a forward price-to-sales ratio of 51.8×). 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. We’d recommend looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.

Stocks We Like More Than Rocket Lab

The market’s up big this year - but there’s a catch. Just 4 stocks account for half the S&P 500’s entire gain. That kind of concentration makes investors nervous, and for good reason. While everyone piles into the same crowded names, smart investors are hunting quality where no one’s looking - and paying a fraction of the price. Check out the high-quality names we’ve flagged in our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).

Stocks that have made our list include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today.