Rocket Lab Stock Is Soaring Again: Should You Buy It Under $30?

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8 hours ago

Rocket Lab is gaining a reputation for reliability in the rocket launch and space systems market.
The company is building on its capabilities and improving its relationships as a defense contractor.
While this young sector shows a lot of great promise, the stock looks overvalued today.
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Space is the final frontier, and it is now turning into a burgeoning economy. Researchers estimate that the space economy is worth over $500 billion with heavy spending from governments around the world along with private-company partners, and that figure is expected to grow to around $1.8 trillion a year by 2035.
This is a huge opportunity for start-ups, perhaps rivaled only by artificial intelligence (AI) over the next decade when it comes to both growth rates and size. One company that dominates (and actually built) the entire space market is SpaceX. It's privately held, but luckily, investors have other space economy stocks that are turning into promising businesses.
Enter Rocket Lab (NASDAQ: RKLB), the space flight company increasingly competing with SpaceX and developing promising capabilities to grow its presence in this large market. The stock has begun to soar again and is trading at around $26 as of this writing. Should you buy while shares are still under $30?
Rocket Lab began its journey in the space economy with its small Electron rocket. It has now begun to expand and vertically integrate various space economy segments.
It just acquired a company called Geost for $275 million. Geost develops optical and infrared capabilities for satellites with a focus on selling to the U.S. government's national security satellites. Rocket Lab is used by the government to launch its payloads into space. Now, it will be helping to build and operate these payloads for customers.
It keeps vertically integrating its launch and space systems, which gives it a competitive advantage over other companies that only offer one or the other (SpaceX is the only other vertically integrated player). Rocket Lab offers solar energy, radio systems, and software for companies sending missions operating in space. This is why its backlog was over $1 billion as of the end of last quarter.
Electron launch missions will continue throughout 2025, hopefully building on the company's strong safety and reliability record. The next step for the company will be testing and launching its larger Neutron rocket for customers. Testing is underway for this rocket right now with a planned mission for a confidential customer sometime in 2026.
Larger rockets mean larger payloads, which means more revenue per launch. It also will give the company more of an opportunity to sell its space systems on these launches. The Neutron is the key for Rocket Lab to take the next step in its capabilities as a space flight company and to grow its backlog and revenue.
Defense contracts have been a huge part of Rocket Lab's business. It currently helps with Air Force missions and a hypersonic testing program called HASTE. It was recently added to the National Security Space Launch (NSSL) program for its Neutron rocket, another reason why this new rocket is so important for the company's future.
A growing relationship with the U.S. government could not have come at a better time for Rocket Lab. The government is set on spending a ton of money on space solutions as the next frontier in national defense. For example, the proposed Golden Dome missile defense project for the U.S. would cost an estimated $175 billion over three years to build. The company would be a prime candidate to win subcontracts for this ambitious project.
As the Neutron comes on line and Rocket Lab builds up its capabilities and reputation in the space economy, we should see its backlog climb higher. This is a key indicator for investors to watch. The current backlog will have around half of its revenue recognized over the next 12 months, and half in later periods. In order to grow revenue over the long term, the company will need to grow its backlog and win more contracts from government and commercial customers.
There is a lot of potential with Rocket Lab's business, but it might all be priced into the stock (and more) right now. It has a market cap of $12.3 billion. Revenue was only $466 million over the last 12 months. The company has never generated a profit and continues to lose money.
If the company is successful with its ambitions to build a vertically integrated space company, it will eventually generate billions of dollars in revenue -- perhaps tens of billions 15 to 20 years from now. However, that is a long way off, and the stock looks fully priced versus what the company can accomplish in the next few years.
For this reason, the stock looks like one to avoid even with the price under $30. The business may be promising, but the market is getting ahead of itself with Rocket Lab at the moment. This is a high-risk stock to keep out of your portfolio right now.
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Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Rocket Lab USA. The Motley Fool has a disclosure policy.
Rocket Lab Stock Is Soaring Again: Should You Buy It Under $30? was originally published by The Motley Fool