Should Buying Rocket Lab USA Stock Be Considered Immediately?
Last year saw unprecedented success for Rocket Lab USA (RKLB, -6.77%), marking a milestone year in the aerospace industry. The company's flagship Electron rocket emerged as a game-changer, establishing Rocket Lab as a key player in the small satellite launch market and propelling it to the No. 2 launch company position in the U.S., trailing only SpaceX.
Rocket Lab's meteoric rise continued with 16 launches in 2023, a 60% increase compared to the previous year. This success was not limited to launches, as the company's space systems business also witnessed growth, offering spacecraft engineering, design, components, and manufacturing services. The synergy between these two divisions has enabled Rocket Lab to expand its revenue by 65% to $304 million through the first three quarters of the year, while its gross profit more than doubled to $79 million.
However, increased R&D and administrative expenses led to an operating loss of $138 million during this period.
Despite its strong position, Rocket Lab's market share remains far from rivaling SpaceX. Last year, SpaceX launched 134 autonomous missions with its Falcon family of rockets, which carry significantly heavier payloads than Rocket Lab's Electron. SpaceX's Falcon 9 rocket can carry up to 13,000 kilograms (around 28,600 pounds), while the Electron can handle up to 660 pounds. SpaceX's Falcon Heavy, with a capacity of more than 66,000 pounds, caters to large satellites and interplanetary missions.
Recognizing this gap, Rocket Lab is developing its Neutron rocket, which aims to bridge the payload capacity divide and rival the Falcon 9. With a similar carrying capacity of 28,600 pounds, the Neutron could position Rocket Lab to target more lucrative contracts, potentially earning up to $50 million to $55 million per launch. This revenue source would represent a significant boost for Rocket Lab, generating six times more revenue than its Electron launches.
In August 2023, Rocket Lab fired its Neutron engine's Archimedes engine for the first time at NASA's Stennis Space Center in Mississippi, marking a significant step towards its projected mid-2025 launch date. The company has also secured a deal with a Japanese Earth imaging company for three missions in 2023 and another in 2026. This partnership, along with a backlog of over $1 billion in future launches, highlights the strong demand for Rocket Lab's services and underpins its growth potential.
Yet, Rocket Lab USA's stock is currently trading at a hefty valuation of nearly 38 times trailing-12-month sales. Analysts predict the company's revenue may reach $605 million by 2025; however, profitability is not foreseen until 2026. Even when considering these projections, Rocket Lab's stock still trades at 23 times forward sales.
Investors should consider Rocket Lab USA's growth potential and the market demand for its launch services, but be mindful of its elevated valuation and the relationship between its financial performance and expectations for market dominance. Rocket Lab USA might prove to be an exciting investment opportunity for aggressive, growth-focused investors looking to capitalize on the expanding space economy, but the company's progress in developing its Neutron rocket and maintaining its industry competitiveness will remain a critical factor in future financial performance.
Rocket Lab's financial performance in the first three quarters of 2023 saw a 65% revenue increase to $304 million, primarily due to its space systems business. The company’s focus on investing in research and development contributed to an operating loss of $138 million during this period.
Rocket Lab is looking to bridge the payload capacity divide by developing its Neutron rocket, aiming for a carrying capacity of 28,600 pounds, similar to SpaceX's Falcon 9. The successful firing of Neutron's Archimedes engine in August 2023 marked a significant step towards its projected mid-2025 launch date.
The valuation of Rocket Lab USA's stock is currently high, trading at nearly 38 times trailing-12-month sales. Despite analysts predicting the company's revenue to reach $605 million by 2025, profitability is not expected until 2026.
Investors who enjoy taking on risk and focusing on long-term growth may find Rocket Lab USA an appealing investment opportunity, given its position in the expanding space economy and the strong demand for its launch services. However, the company's ability to develop its Neutron rocket and maintain industry competitiveness will significantly impact its financial performance in the future.