The past six months have been a windfall for Rocket Lab’s shareholders. The company’s stock price has jumped 83.2%, hitting $19.80 per share. This was partly thanks 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? Check out our in-depth research report to see what our analysts have to say, it’s free .

We’re happy investors have made money, but we're swiping left on Rocket Lab for now. Here are three reasons why we avoid RKLB and a stock we'd rather own.

Why Is Rocket Lab Not Exciting?

Becoming the first private company in the Southern Hemisphere to reach space, Rocket Lab (NASDAQ:RKLB) offers rockets designed for launching small satellites.

1. EPS Took a Dip Over the Last Two Years

While long-term earnings trends give us the big picture, we also track EPS over a shorter period because it can provide insight into an emerging theme or development for the business.

For Rocket Lab, its two-year annual EPS declines of 31.2% mark a reversal from its (seemingly) healthy four-year trend. These shorter-term results weren’t ideal, but given it was successful in other measures of financial health, we’re hopeful Rocket Lab can return to earnings growth in the future.

2. Cash Burn Ignites Concerns

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

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 57.3%, meaning it lit $57.35 of cash on fire for every $100 in revenue.

3. Short Cash Runway Exposes Shareholders to Potential Dilution

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

Rocket Lab burned through $116 million of cash over the last year, and its $468.4 million of debt exceeds the $271 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.

Unless the Rocket Lab’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.