What happened
Setting a company record for the quickest turnaround between launches wasn’t enough to steady investors’ nerves relating to Rocket Lab USA (RKLB 2.73%) last month. Instead, an uninspiring forecast for the first quarter of 2023, bearish commentary from analysts, insider selling, and concerns about the company’s finances provided investors with enough reasons to keep the space stock grounded.
After falling 9.5% in February, shares of Rocket Lab dipped lower in March and tumbled 10.2%, according to data from S&P Global Market Intelligence.
So what
Beating analysts’ estimates of $49.2 million, Rocket Lab announced earnings on Feb. 28, reporting sales of $51.8 million for the fourth quarter of 2022. Investors, however, focused more acutely on what management had to say about the near future. For Q1 2023, management forecasted revenue of $51 million to $54 million, notably lower than the $66.2 million analysts expect the company to book.
Management also forecasted Q1 2023 adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of negative $28 million to negative $30 million. For context, Rocket Lab reported adjusted EBITDA of negative $8 million during the same period in 2022.
Analysts’ downwardly revised price targets last month represented another catalyst for the stock’s decline. On March 1, Canaccord analyst Austin Moeller cut the price target on Rocket Lab’s stock to $13 from $15. Edison Yu, an analyst at Deutsche Bank, also espoused a more pessimistic view of the stock, reducing the price target to $10 from $12 on March 7.
A third factor affecting investors last month was the stock sales of two key insiders. Rocket Lab CFO Adam Spice and senior vice president Arjun Kampani each trimmed their positions in the company’s stock on March 9. According to regulatory filings, Spice and Kampani sold 64,189 shares and 22,532 shares, respectively.
We know now that the government chose to back up uninsured deposits at Silicon Valley Bank, but when regulators closed the bank on March 10, that wasn’t the case. So when Rocket Lab reported that it had deposits of about $38 million — or 7.9% of the company’s total cash and cash equivalents — at SVB, investors’ nerves were rattled, leading them to click the sell button.
Now what
Clearly, there was no shortage of factors leading investors to shy away from Rocket Lab in March. While disconcerting, the analysts’ downgrades and insider selling should be taken with a pinch of salt.
Management’s adjusted EBITDA forecast, on the other hand, is worth further investigation for potential investors. Although Rocket Lab is a promising investment opportunity for those seeking exposure to the burgeoning space economy, it’s not without risk — especially as it endeavors to develop its Neutron program throughout 2023 and into 2024.
