Why Rocket Lab Stock Dropped on Thursday

Rocket maker Rocket Lab (NASDAQ: RKLB) had some good news to report last night, but investors don't seem interested in hearing it. Shares of the stock flamed out for a 4.6% loss through 9:45 a.m. ET Thursday morning, although losses may be moderating as the day progresses.

Rocket Lab's good news

It's easier to explain why Rocket Lab's losses may be moderating today than why the stock fell in the first place. Last night, the company confirmed the successful launch of its 63rd Electron mission and the successful deployment of eight tiny Earth observation satellites for global wildfire detection company customer OroraTech.

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Rocket Lab was especially proud of the fact it was able to launch the rocket, dubbed "Finding Hot Wildfires Near You," less than four months after OroraTech signed the launch contract. This was also the company's third launch in the last two weeks.

CEO Sir Peter Beck highlighted the company's unusually quick turnaround times, which can be a competitive advantage in the space launch industry. He also promised "another record-breaking year in launch with Electron" in 2025.

Image source: Rocket Lab.

Is Rocket Lab stock a sell?

Basically then, it was nothing but good news for Rocket Lab last night. So why is the stock falling this morning? Almost certainly because of its valuation.

While Rocket Lab's performance as a business is impressive, and its stock is still up 372% over the last 52 weeks, the company has, through no fault of its own, been turned into something of a momentum stock by day traders. Worse, with Rocket Lab's momentum temporarily in abeyance (the stock is down 36% over the last month-and-a-half), day traders may be running scared.

Meanwhile, Rocket Lab is unprofitable today and valued at a sky-high 22x trailing sales. Few analysts expect to see Rocket Lab turn a GAAP profit before 2027, although the company might generate positive free cash flow next year.

No matter how successful the business is, it's likely Rocket Lab stock will remain volatile until the conmpany has some positive profits to give it a better valuation. Until that happens, "caveat investor."

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Rich Smith has positions in Rocket Lab USA. The Motley Fool recommends Rocket Lab USA. The Motley Fool has a disclosure policy.