The space economy upstart is just getting started.
The last month has been a doozy for Rocket Lab (RKLB -0.11%). After hitting a major milestone of 50 successful launches with the Electron rocket, the company is firing on all cylinders and signing major deals with other space economy players.
Building a private rocket company is close to impossible, and Rocket Lab is now the second player to consistently deliver launches for customers, along with SpaceX. Shares are up 10% in the past month.
Here’s what comes next for Rocket Lab, and whether the stock is a buy below $5 right now.
50 small rocket launches
In June, Rocket Lab performed its 50th rocket launch on its Electron system, the first rocket type it developed from scratch. This was the fastest to 50 commercial launches in the history of rocket launching, putting the company on par with SpaceX in its early days and blowing other space start-ups out of the water.
Consistent launches not only bring in revenue (it isn’t free to send satellites and equipment to space!) but also enhance Rocket Lab’s reputation in the industry. It is no surprise then to see companies signing deals for future launches on the Electron system. For example, a company named Synspective just signed a deal with Rocket Lab for 10 future launches with Electron over the coming years.
Electron has been successful due to the engineering reliability of Rocket Lab but also because of the market it targets. As a smaller rocket launching vehicle, Electron is not directly competing with SpaceX — and this has allowed Rocket Lab to wiggle its way into the industry with much success. That is why the company’s revenue has boomed from under $100 million to close to $300 million in just a few years.
The Neutron system is next
With a backlog of $1 billion — over 3x its trailing annual revenue — Rocket Lab’s Electron system is just getting started and should deliver sales for the company for years to come. There is also the company’s growing space systems revenue where it contracts for work outside of just rocket launching. Last quarter, it announced a deal with a Space Prime contractor for solar systems worth $150 million. Not bad.
But what remains the most important project for the company and shareholders is the development of the large Neutron rocket. Neutron is the second rocket launching system for Rocket Lab and will come with a significantly higher payload than the Electron, directly competing with SpaceX. Higher payload directly correlates with more revenue per rocket launch. Although developing a large rocket takes a lot of money and technical expertise, the company is making progress with the first prototype and hopes to test it sometime in the near future.
Investors should track these developments closely. If the Neutron program is a success, Rocket Lab will go from generating hundreds of millions of dollars to multiple billions in revenue each year.
RKLB Revenue (TTM) data by YCharts
Should you buy the stock below $5?
Today, Rocket Lab shares trade at a measly $4.80 and is off 77% from all-time highs. It has a market capitalization of $2.3 billion and $500 million in cash on the balance sheet, a tiny fraction of the estimated $200 billion SpaceX valuation (SpaceX is not publicly traded). The company is light years ahead of other start-ups, which have failed to launch consistently for commercial customers.
There is a lot of risk with the company. It is unprofitable at the moment, has not proven anything with the new Neutron system, and operates in a volatile industry. But there is also a ton of upside if it can hit on its growth plans. Below $5 a share, Rocket Lab looks like a good bet for investors who want exposure to the fast-growing space economy.