Rocket Lab USA, Inc. RKLB recently announced its successful launch of a suborbital mission to test hypersonic technology as part of the Multi-Service Advanced Capability Hypersonics Test Bed (MACH-TB) project. Notably, RKLB designed, manufactured, assembled and integrated the experimental hypersonic instrumentation launched on this mission.
This launch undoubtedly strengthened Rocket Lab’s footprint in the space launch services market, with more than 200 payloads deployed from its U.S. and New Zealand launch sites.
Considering the aforementioned discussion, investors interested in space companies might get lured to add RKLB stock to their portfolio. However, before making any hasty decision, it would be prudent to take a look at RKLB’s year-to-date performance, the stock’s growth prospects as well as risks (if any) to investing in the same. The idea is to help investors make a more insightful decision.
RKLB Stock Beats Industry, Sector & S&P500
Rocket Lab’s shares have surged a massive 320.2% in the year-to-date period, outperforming the Zacks aerospace-defense industry’s decline of 10.1%. It has also outpaced the broader Zacks Aerospace sector’s decline of 0.9% as well as the S&P 500’s gain of 28.1% in the same time frame.
Image Source: Zacks Investment Research
A similar stellar performance has been delivered by other industry players, such as Embraer ERJ, Leidos Holdings LDOS and RTX Corp. (RTX), whose shares have surged 100.5%, 48.1% and 38.5%, respectively, year to date.
What’s Been Pushing RKLB Stock Price?
The commercial market for space technologies, including communication, earth observation and navigation services, has grown significantly over the past decade. Moreover, with governments worldwide bolstering national security in response to increasing global tensions, the demand for satellite deployments for military applications has also been increasing.
Together, these factors are driving the demand for Rocket Lab's launch services, spacecraft design, manufacturing, components and on-orbit management solutions. Consequently, the company built approximately 10 launch vehicles and launched 11 as of Sept. 30, 2024.
Also, Rocket Lab’s Electron small launch vehicle, which addresses the need for swift, real-time intelligence through small payloads, has been catering to the growing demand for small launch services. Since its debut in 2017, Electron has emerged as the leading small spacecraft launch vehicle. It has successfully delivered more than 197 spacecraft to orbit across 49 missions for government and commercial clients by Sept. 30, 2024, thereby underscoring its strong market demand.
Such launch vehicle deliveries as well as successful mission launches, like the latest one, have been bolstering the company’s top line, which registered a solid 55% year-over-year improvement for the third quarter of 2024. This must have been boosting investors’ confidence in this stock lately, which must have reflected in its solid price return year to date.
What Lies Ahead for RKLB Stock?
As per a report by the World Economic Forum, published in April 2024, the space economy is expected to be worth $1.8 trillion by 2035 as satellite and rocket-enabled technologies become increasingly prevalent. This bolsters the growth prospects for Rocket Lab, with its Electron being the second most frequently orbital-launched rocket by companies operating in the United States.
Moreover, to maintain its prowess in space technology, RKLB has been steadily making innovations. One such innovation is its reusable-ready medium-capacity Neutron launch vehicle. This launch vehicle will increase the payload capacity of RKLB’s space launch vehicles to approximately 15,000 kg for expendable launches to low Earth orbit and lighter payloads for reusable configurations and into higher orbits. Neutron is expected to launch nearly all of the spacecraft configurations that Rocket Lab anticipates to launch through 2029.
Such market prospects, coupled with RKLB’s innovations, offer solid growth opportunities for the company.
A quick sneak peek at its near-term sales estimates mirrors similar growth prospects.
Upbeat Sales Estimates for RKLB Stock
The Zacks Consensus Estimate for RKLB’s 2024 and 2025 sales reflects an improvement of 77.3% and 31.6%, respectively, year over year.
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Risks to Consider Before Choosing RKLB Stock
Despite the aforementioned growth opportunities, there are certain challenges that RKLB faces at present. One should consider these risks before investing in the stock. One such hazard is the high operating expenses that the company incurs due to its consistent investments in developing new products and enhancing the existing ones.
Such high operating expenses largely offset the benefits of strong revenue growth, thereby causing RKLB to report losses in the quarterly results. To this end, Rocket Lab expects its operating expenses to increase in the future. If its revenue growth does not increase enough to offset the anticipated rise in operating expenses, the company may not be able to achieve profitability.
RKLB Stock Trading at a Premium
In terms of valuation, RKLB’s forward 12-month price-to-sales (P/S) is 20.64X, a premium to its industry’s average of 1.65X. This suggests that investors will be paying a higher price than the company's expected sales growth compared to that of its industry’s.
Image Source: Zacks Investment Research
Should You Buy RKLB Stock Now?
To conclude, investors interested in Rocket Lab should wait for a better entry point, considering its premium valuation and the challenges it is facing in terms of high expenses.
However, those who already own this Zacks Rank #3 (Hold) company’s shares may stay invested due to RKLB’s upbeat sales estimates, benefits of the steadily growing space economy and solid year-to-date price performance.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
