Retail investors have clamored to invest in SpaceX, the leading rocket launch company owned by Elon Musk that has remained private despite having an estimated valuation of $200 billion. The company dominates the private rocket launch market, which is growing like gangbusters and is the key backbone of the burgeoning space economy. It also has the Starlink satellite internet business to boot.
But what if I told you investors can invest in the potential second coming of SpaceX? I'm talking about Rocket Lab(NASDAQ: RKLB), a publicly traded space economy stock that is nipping on SpaceX's heels. The company just hit a huge launch milestone and is signing deals left and right to build its customer backlog.
Here's what might come next for Rocket Lab, and what investors need to know about the stock.
Fastest to 50 launches in history
Rocket Lab entered the launch market by targeting a niche of smaller payloads (payloads being the size and weight capacity for a rocket). It debuted the Electron rocket years ago for companies and government to do smaller, flexible launches when SpaceX was going bigger. With an engineering-led team, this strategy has worked wonderfully, with the company building a reputation as a reliable and safe launch partner for commercial customers.
Recently, Electron completed its 50th total launch. Rocket Lab has reached this milestone quicker than any rocket type in history, even the SpaceX Falcon 9. It only hopes to grow from here, increasing its annual frequency to hopefully dozens of Electron launches within the next few years.
Customers are opening their pocketbooks to Rocket Lab after seeing how reliable the Electron rocket is. For example, Japanese company Synspective just signed a contract for 10 launches on the Electron system over the next few years.
More launch frequency means more revenue for Rocket Lab. Revenue hit a record $93 million last quarter and is up a whopping 769% since going public back in 2021.
Up next: The Neutron rocket
The Electron rocket system will continue to grow in the coming years. However, this is not all Rocket Lab has in the development pipeline. For years, the company has been working on a larger rocket called the Neutron, which will have a significantly higher payload than the Electron. A higher payload means more revenue per launch, which is why the project is so important for Rocket Lab to scale and compete with SpaceX.
To get the Neutron operational, Rocket Lab is spending a ton of money on development, manufacturing, and launch capabilities for larger rockets. This is why the company has a large cash burn of over $100 million a year. Cash burn is not an issue (yet) due to its $500 million cash balance, but the Neutron needs to start operations within the next few years in order for Rocket Lab to start generating a profit. Otherwise, the business is going to struggle.
Rocket Lab is an ambitious company that wants to be one of the large players in the rocket launching space. It will take a ton of capital spending to get there, though.
RKLB Free Cash Flow data by YCharts
Is the stock a buy?
Today, Rocket Lab has a market cap of $2.4 billion. That is an approximate 8x multiple of price-to-sales (P/S) versus its trailing-12-month revenue. The company is not generating any earnings, so it cannot be valued on a price-to-earnings ratio (P/E).
There is also a ton of execution risk with the stock. If the new Neutron rocket doesn't work, the company will suffer huge losses, and it has not flown a single test flight yet.
While an unprofitable company trading at a premium P/S may not look like a bargain, investors should consider the upside with Rocket Lab. It has a proven track record with the Electron rocket and could start generating billions of revenue every year on solid profit margins if/when the Neutron rocket starts launching regularly for customers.
I wouldn't be shocked if Rocket Lab's market cap is much higher a few years from now, with an outside chance it reaches SpaceX's valuation within a decade or longer. That is an interesting opportunity for a stock valued at $2.4 billion today. If you want exposure to the space economy, it might be worth it to add Rocket Lab stock to your portfolio today.
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Brett Schafer has no position in any of the stocks mentioned. The Motley Fool recommends Rocket Lab USA. The Motley Fool has a disclosure policy.
