Rocket Lab USA (NASDAQ: RKLB) plans to go to Mars, and investors seem to think the stock could go along for the ride.
Shares of Rocket Lab climbed 19.7% in August, according to data provided by S&P Global Market Intelligence, on solid earnings and news about a high-profile mission.
To Mars and beyond!
Rocket Lab is part of a new generation of space companies reshaping the industry and taking share from incumbents. The company has quickly established itself as a leader, and is now trying to boldly go where few have gone before.
In August, the company reported strong year-over-year growth in the second quarter and a backlog of more than $1 billion in future business. Rocket Lab also announced it had built two spacecraft for the University of California Berkeley's Space Science Laboratory and NASA. The mission, which will travel to Mars, is part of a demonstration by Rocket Lab that it can do space missions at about one-tenth the cost of legacy space contractors. If successful, Rocket Lab should see significant demand for its services at these lower price points.
Is Rocket Lab stock a buy?
It is important to note that Rocket Lab is an early-stage, money-losing company with significant competition not just from large defense contractors but other start-ups as well. Rocket science is notoriously hard, and a lot can go wrong.
That said, Rocket Lab deserves plaudits for the progress management has made developing the business. Rocket Lab hopes to be a one-stop shop for government and corporate customers, able to design and manufacture satellites, launch them into space, and then maintain and control them from Earth.
A lot of the projected growth in the space industry assumes that companies who in the past had no space presence will eventually see value in having their own satellites in orbit. That requires a lower cost, and likely would favor Rocket Lab's approach compared to customers developing their own expertise in-house or dealing with a large number of vendors.
So, although this stock is not yet a sure thing, the company is well on its way toward proving out its concept. Demonstrating its value to NASA with this Mars mission is part of that process. The company continues to make progress in other areas as well, including the development of its new Neutron rocket that it hopes to launch in 2025 and which could eventually allow it to take larger payloads into space.
Given the risks involved in space, investors should remain cautious. But for those with a taste for high-risk, high-potential-reward type investments, Rocket Lab deserves consideration as part of a well-diversified portfolio.
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Lou Whiteman has positions in Rocket Lab USA. The Motley Fool recommends Rocket Lab USA. The Motley Fool has a disclosure policy.
