Should Investing in Rocket Lab's U.S. Shares be Considered?
In recent decades, space exploration has shifted from primarily government-led initiatives to a dynamic sector dominated by private enterprises. Firms like SpaceX and Blue Origin have taken center stage, capturing investor attention eager to profit from the booming industry.
Notably, SpaceX won't be launching a public stock offering in the near future. In this scenario, Rocket Lab USA (RKLB, 8.15%) becomes an intriguing investment prospect. The company's stock price has experienced a stark increase, leaping by 389% from its 52-week low in mid-April.
Rocket Lab has carved a niche for itself as the second-most-used space launch company in the U.S. It consistently raises its launch frequency and boasts a substantial order backlog. For those considering investing in Rocket Lab, here are some key details.
Pivotal player in the thriving space economy
The private sector plays a significant role in space exploration and travel today. Several innovative projects are in the works, such as satellites capable of beaming services from space to provide communications to remote areas and autonomous rovers that conduct research on the Moon. According to McKinsey, the global space economy could be valued at $1.8 trillion by 2035.
Rocket Lab's Electron rocket is the second-most-used orbital rocket in the U.S., surpassed only by SpaceX's Falcon launch vehicle. In 2021, SpaceX had a dominant market share, carrying out 98 launches, or 90% of launches from U.S.-based companies.
Although SpaceX holds a stronghold on the launch market, Rocket Lab is catching up, conducting nine launches in 2021 and thirteen launches through October 2022.
Notable growth, but still operating at a loss
Rocket Lab's growth has been impressive. In the third quarter, gross revenue was $105 million, up 55% compared to the previous year. For the year, revenue surged by 64.9% to $304 million, indicating a continuous demand for its services, which include launches and the design of spacecraft components. The company estimates fourth-quarter revenue to be between $125 million and $135 million.
However, Rocket Lab has yet to report a profit. This year's net loss amounted to $138 million, an increase from $132 million the year prior.
Upcoming developments for Rocket Lab
One limitation of Rocket Lab's Electron launch vehicle is its relatively low payload capacity, around 250 kilograms. Smaller rockets result in reduced margins per launch and limited support for larger civil and defense payloads, giving SpaceX a competitive edge with its Falcon launch vehicle, which can carry 10 times the amount.
Since 2021, Rocket Lab has been working on its medium-lift Neutron rocket, which will have an impressive payload capacity of 13,000 kilograms. This substantial increase in payload capacity enables Rocket Lab to tackle larger contracts and boost its margins.
Rocket Lab has made good progress on its Neutron rocket. In August, it tested its Archimedes engine, intended for the larger rocket, for the first time. CEO Peter Beck maintains that tests keep the project on track to launch Neutron by mid-2025. If Rocket Lab's Neutron rocket launches on schedule, it could help the company achieve profitability in the following year.
Rocket Lab recently signed a multi-launch agreement with an unnamed commercial satellite constellation operator for the Neutron rocket. Two dedicated missions are scheduled for mid-2026, marking the start of a collaboration that could potentially utilize Neutron to deploy the entire constellation for the customer.
Should you invest?
Rocket Lab's demand for services is strong. By the end of the third quarter, its backlog was $1.05 billion, with half expected to be realized as revenue within the next twelve months.
Over the past year, Rocket Lab stock has soared as it expanded its launch frequency and secured new contracts. At approximately 26 times sales and 20 times next year's estimated sales, the stock appears high-priced. However, Rocket Lab's advancements may signal a turning point for the up-and-coming space company.
If Launch of Neutron rocket is delayed, it could pose challenges to the profitability target and result in continued stock volatility. For this reason, Rocket Lab stock is an attractive offering for investors aiming to invest in space stocks long-term and willing to endure the volatile ride as Rocket Lab strengthens its position in the emerging space economy.
In light of the booming space economy, which McKinsey estimates could be worth $1.8 trillion by 2035, investing in companies like Rocket Lab, which consistently raises its launch frequency and boasts a substantial order backlog, could be a lucrative move. Rocket Lab's finance strategy includes focusing on future projects such as the medium-lift Neutron rocket, which has an impressive payload capacity of 13,000 kilograms and is expected to help the company tackle larger contracts and boost margins.
Recognizing the potential of the space economy, various firms are investing in projects aimed at providing communications from space to remote areas and conducting research on the Moon with autonomous rovers. These developments indicate a significant role for private finance in space exploration and travel, making it an attractive sector for investors looking to diversify their portfolio and capitalize on future growth.
