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The space exploration industry is entering a new era of growth and innovation, fueled by technological advancements such as artificial intelligence (AI), private sector involvement, and renewed government focus. Deep space missions seek to explore the moon, Mars, and beyond. The global space economy, which stood at $546 billion in 2022, is expected to grow by 41% over the next five years.
Rocket Lab (RKLB) is one relatively new entrant that is transforming the small satellite launch industry by offering frequent and affordable access to space. Founded in 2006, the aerospace company is a small satellite launch service provider. It is rapidly expanding to be able to compete with Elon Musk-owned private company SpaceX, which leads the industry.
RKLB shares jumped 46% in 2023, outperforming the S&P 500 Index’s ($SPX) gain of about 24%. This year has been slower for the company, with shares off 5.6% in 2024. Nonetheless, based on its Street-high estimate of $10, the stock could skyrocket as much as 90.5% over the next 12 months. Let's see if this standout growth stock is worth buying right now.
Rocket Lab is Aiming High
The rising demand for small satellite launches has resulted in significant revenue growth for Rocket Lab. The company rose to prominence thanks to its Electron rocket, a small-lift launch vehicle with a lift capacity of around 300 kilograms designed to launch small satellites into low Earth orbit.
Furthermore, its revenue streams are diverse, encompassing launch services, spacecraft components, satellite design and manufacturing, and mission operations. In the first quarter of 2024, the company launched four Electron missions. Total revenue increased by a whopping 69% year on year to $92.7 million.
The company has made significant investments in infrastructure, technology, and talent to support future growth. Since Rocket Lab is still in the growth phase, it has not consistently reported profits. It reported a net loss of $0.09 per share, compared to $0.10 in the year-ago quarter.
The company has completed over 1,700 missions worldwide, showcasing its reliability in the small satellite launch market. It recently announced the 51st Electron mission, the ninth launch in 2024, which will take place during a 14-day launch window beginning July 31.
Rocket Lab is developing the Neutron rocket, a medium-lift launch vehicle capable of carrying a payload of 13,000 kilograms. This will increase Rocket Lab's market reach and competitiveness in the space launch industry. It is also expected to compete against SpaceX's Falcon 9. Management expects the first launch of Neutron to happen by mid-2025. Furthermore, the company is also developing a twin spacecraft for NASA’s ESCAPADE mission to Mars.
Rocket Lab's Path to Profitability
While these developments are impressive, they're also increasing costs and weighing on the company’s path to profitability. In Q1, the adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) loss turned out to be $21.6 million. Management anticipates an adjusted EBITDA loss of $23 million to $25 million in the second quarter, set to reported on Aug. 8.
Rocket Lab ended the quarter with $365.9 million in cash and cash equivalents. Its debt-to-equity ratio of 0.85 is relatively high. The aerospace industry requires significant capital investment in R&D, manufacturing, and infrastructure. Securing ongoing funding and managing debt levels will be critical for Rocket Lab's survival in this increasingly competitive market.
The company has more than $1 billion in backlog, which represents revenue that has yet to be recognized. Management predicts revenue growth of 69% to 77% in the second quarter, to a range between $105 million and $110 million, which is in line with Wall Street's consensus estimate for the quarter.
Looking ahead, analysts covering the stock predict a 77.7% increase in revenue in 2024, followed by 34% growth in 2025. If revenue increases at this rate, losses might decrease by 2025, resulting in a profit. Rocket Lab stock, trading at six times forward sales, is an ideal buy for a high-growth stock in the aerospace sector.
What Does Wall Street Say About Rocket Lab Stock?
Overall, Wall Street has rated Rocket Lab stock a “moderate buy.” Out of the 12 analysts that cover the stock, eight rate it a “strong buy,” and four rate it a “hold.” The average target price of $7.11 implies a 35.4% upside from current levels.
Deutsche Bank (DB) analyst Edison Yu has set a Street-high target price of $10 for RKLB. This suggests the stock can rally up to 90.5% over the next 12 months. The analyst has also rated the stock a “buy,” arguing that the company’s revenue could accelerate in 2024. Yu also believes that, while higher Neutron expenses are putting pressure on profitability, they are necessary for the company to maintain its position in the space industry.
More recently, Morgan Stanley (MS) analyst Kristine Liwag downgraded RKLB stock from "buy" to "hold," along with a target price cut from $8 to $6. While Liwag is optimistic about the company's long-term growth prospects, the analyst has grown cautious over recent developments, such as the delay in the launch of Neutron, and sees a lack of near-term catalysts for RKLB.
Rocket Lab's management had previously stated on its Q4 earnings call that Neutron would be launched by the end of 2024. However, during the most recent quarter, the company announced a delay to mid-2025.
The Bottom Line on RKLB Right Now
Without a doubt, Rocket Lab is a dynamic player in the space industry, focusing on small satellite launches and expanding service offerings. The company's innovative Electron rocket, vertical integration strategy, and ambitious growth plans, including its Neutron rocket development, set up RKLB for future success.
While Rocket Lab's long-term prospects appear promising, investors should be aware that it is a penny stock that is not yet profitable. Furthermore, space launches are both risky and complex. Any launch failures or technical issues could have an impact on Rocket Lab's reputation and finances. As a result, I recommend starting with a small stake in this growth stock and closely monitoring its progress.
On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
