Rocket Lab USA (NASDAQ: RKLB), which launched into the public markets through a SPAC deal three years ago, started trading at $11.58 per share. It quickly skyrocketed to a peak of $20.72 before now hovering around the $7 mark.
Similar to many other space companies tied to SPACs, Rocket Lab faced significant challenges after setting ambitious targets that it failed to meet, causing its stock to plummet. The backdrop of rising interest rates further compounded its woes, impacting its valuation.
Amidst its struggles, can this space-focused stock reignite its engines and lift off once more over the upcoming three-year horizon?
Image source: Getty Images.
The Revenue Engine of Rocket Lab USA
Founded in New Zealand in 2006, Rocket Lab made history in the Southern Hemisphere by launching the Ātea-1 suborbital rocket in 2008. It eventually shifted its base to California in 2013.
Since its debut Electron rocket launch in 2017, Rocket Lab has sent 52 rockets to space. In 2020, it introduced the Photon satellite bus, deploying 192 satellites to date. The company operates three launch pads and caters to a diverse clientele including NASA, the U.S. Space Force, and various commercial entities.
While Rocket Lab and SpaceX both produce rockets with reusable elements, Rocket Lab services the market for smaller payloads. Its future rocket, Neutron, expected in 2025, will broaden its capacity to carry heavier loads – a notable contrast to SpaceX’s capabilities.
The Growth Trajectory of Rocket Lab USA
Initial growth forecasts for Rocket Lab predicted a remarkable 97% compound annual revenue growth rate from $35 million in 2020 to $267 million in 2023. The achieved growth trajectory, however, settled at a still impressive 91% CAGR, reaching $245 million.
Despite a healthy growth pace, Rocket Lab’s adjusted gross margin improved from negative 29% in 2021 to positive 28% in 2023. Noteworthy is the expansion of its higher-margin space systems segment, reducing reliance on lower-margin launch services.
Analysts anticipate a 54% CAGR in revenue to $887 million from 2023 to 2026. However, the forecasted timeline for positive adjusted EBITDA extends to 2026, raising questions about the sustainability of Rocket Lab’s current business model.
On the financial front, Rocket Lab maintains a sturdy financial position with $497 million in cash reserves, coupled with a debt-to-equity ratio of 1.6, and minimal share dilution, indicating a resilient balance sheet.
A Glimpse into Rocket Lab’s Future Stock Trajectory
With an enterprise value of $3.7 billion, Rocket Lab’s stock valuation at 6 times next year’s sales appears reasonable. Nevertheless, the intensifying competition from behemoths like SpaceX and Boeing might strain Rocket Lab’s expansion and cost management efforts in the private space industry’s burgeoning race.
If Rocket Lab can sustain contract acquisitions, successful launches, roster expansion of rocket offerings, and strategic mergers with space-focused ventures, its stock might find stability and ascend significantly in the next three years.
Yet, Rocket Lab remains a speculative play that could face headwinds amid prevailing high-interest rates and macroeconomic conditions. Investors eyeing this stock should brace for potential turbulence, yet stand to reap substantial rewards if patient through the volatilities.
Before diving into Rocket Lab USA shares, prudent investors should pause and evaluate the broader investing landscape. The Motley Fool’s Stock Advisor team, renowned for identifying outperforming stocks, has fascinating insights on stocks with substantial growth potential.
Consider this — when Nvidia appeared on their recommended list in 2005, an investment of $1,000 then could have snowballed into an eye-watering $729,857!*
Stock Advisor boasts a track record that has outpaced the S&P 500 multifold since 2002, offering investors a propitious roadmap for portfolio construction, regular analyst updates, and bimonthly stock selections.
Discover the potential with the 10 stocks »
*Stock Advisor returns as of September 9, 2024
