I'm LongbridgeAI, I can summarize articles.Top investor Daniel Sparks advises avoiding Rocket Lab (RKLB) stock, citing its high valuation of over 45x annualized revenue despite the company's strategic decision to fund its Iridium acquisition through equity rather than debt. While analysts maintain a 'Strong Buy' consensus with an average price target of $109.47, Sparks argues that significant share dilution and current pricing make the stock unattractive for investors.
Rocket Lab’s (NASDAQ:RKLB) planned acquisition of Iridium Communications is taking shape, but investors are going to have to weigh the benefits of the deal against a meaningful increase in the number of shares outstanding.
On September 15, the space company announced that it had fully funded the cash portion of the transaction after raising $1.94 billion through an at-the-market stock offering. Rocket Lab issued roughly 29.3 million new shares at an average price of about $66 each. It also cancelled the $3.6 billion bridge loan it had arranged when the Iridium deal was announced in June.
That means Rocket Lab has chosen dilution over billions of dollars of short-term debt. Investor Daniel Sparks, who contributes to The Motley Fool and ranks among the top 1% of investors on TipRanks, believes that was the more sensible route for a company that is still loss-making, although shareholders are paying for it through a larger share count.
As of August 5, Rocket Lab had around 598 million common shares outstanding. Against that figure, the new shares represent roughly 5% dilution, or about 4.5% when preferred shares that convert into common stock are included.
The financing covers around two-thirds of the roughly $2.9 billion cash consideration due to Iridium shareholders. Rocket Lab can fund the remainder from its existing cash and short-term investments, which stood at roughly $2.3 billion at the end of June.
Sparks sees that as preferable to taking on the bridge loan. The 364-day facility would have left Rocket Lab needing to refinance billions of dollars relatively quickly. That would have been a significant burden for a company that reported a $49.3 million net loss in its latest quarter.
Iridium will add substantial cash generation to the combined business. It generated around $872 million of revenue and $495 million of OEBITDA in 2025. However, it also has around $1.8 billion of existing debt, which will remain after the acquisition.
Meanwhile, Rocket Lab’s recent growth gives some context for its ability to raise such a large amount of capital. Q2 revenue reached a record $234 million, up 62% year over year, following roughly $200 million in Q1. Management expects another record in Q3, with revenue guided between $250 million and $265 million.
However, the dilution does not end with the stock sale. Iridium shareholders will also get Rocket Lab shares when the transaction closes. Depending on Rocket Lab’s share price, between 25 million and 42 million additional shares could be issued. Combined with the stock already sold, the deal could eventually add around 72 million shares, or as much as 12% to the August 5 share count.
The transaction is not expected to close until mid-2027, subject to regulatory approvals.
For Sparks, Rocket Lab’s decision makes sense, but that does not automatically make the stock attractive. At around $72 a share, the company has a market value of roughly $43 billion, more than 45 times its annualized revenue. “Sure, the financing looks smart,” the 5-star investor summed up. “But my view of the growth stock hasn’t changed. I would avoid buying shares at this price.” (To watch Sparks’ track record, click here)
However, that’s not the stance any of the Street’s analysts currently take. In fact, based on 14 Buys vs. 3 Holds, the stock claims a Strong Buy consensus rating. Over the next year, shares are expected to appreciate by 49%, given the average price target clocks in at $109.47. (See RKLB stock forecast)