Industry estimates suggest that the global space economy, which was valued at $546 billion in 2022, is expected to grow by 41% over the next five years. Here, we'll take a look at penny stock Rocket Lab (RKLB), a private aerospace company that Wall Street analysts predict will skyrocket by the end of 2024.
Founded in 2006, the company has quickly emerged as one of the key players in the rapidly expanding small satellite launch industry. The privately held, Elon Musk-run SpaceX dominates the space economy. Meanwhile, new entrant Rocket Lab is gaining attention for its upcoming next-generation rocket, Neutron, which is expected to compete with SpaceX's Falcon 9.
Rocket Lab shares soared 46% in 2023, outpacing the S&P 500 Index’s ($SPX) gain of 25%. RKLB also outperformed the SPDR S&P Aerospace & Defense ETF's (XAR) gain of 23.2%. RKLB shares hold a 2.6% weighting in the XAR.
So far in 2024, the stock is down 23%. Nonetheless, Wall Street’s high target price of $10 suggests this penny stock can soar as much as 135% in the next 12 months. Down by 47% from its 52-week high, is Rocket Lab stock a good buy now? Let’s find out.
Rocket Lab Is Ambitious
Rocket Lab's mission is to provide dependable and affordable access to space, allowing for the deployment of small satellites for a variety of applications. The company's success until now can be credited to the Electron rocket - a small, lightweight, two-stage launch vehicle designed specifically for deploying payloads in the small satellite class. Its lift capacity is around 300 kilograms.
The company's services also include space software and components, satellite design and manufacturing, and credible launch services. In the recently reported fourth quarter, revenue increased by 16% year-over-year. For the full year 2023, revenue jumped 15.9% to $244.6 million.
RKLB's Long Road to Profitability
With around 1,700 missions globally, Rocket Lab space systems have demonstrated their reliability, cementing their position as a reliable provider in the small satellite launch market. However, the company’s bottom line is still in the red. In 2023, the company reported a loss of $0.38 per share, compared to a loss of $0.29 per share in 2022.
The company's next-generation large launch vehicle, Neutron, may help it become profitable. Neutron has a payload capacity of 13,000 kilograms. In the Q4 earnings call, management emphasized their intention to launch Neutron by the end of the year.
However, Neutron is also forcing the company to spend cash faster than ever before. This is likely why Rocket Lab expects an adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) loss of $28 million to $30 million in the first quarter of 2024.
The company ended the year with $162.5 million in cash and cash equivalents, as well as $87.6 million in long-term debt. The company also had a negative free cash flow of $153.5 million at the end of the fourth quarter.
Management expects a 67% to 78% increase in Q1 revenue to a range between $92 million and $98 million. Analysts' revenue estimate falls in the same range for Q1.
Looking ahead, analysts predict 76% revenue growth in 2024, up from 16% in 2023. However, it may take some time for Rocket Lab to turn a profit.
What Does Wall Street Say About Rocket Lab Stock?
Overall, Wall Street is highly optimistic about Rocket Lab’s stock, and has rated it a “strong buy.” Out of the 10 analysts that cover the stock, nine rate it a “strong buy,” and one rates it a “hold.” The average target price of $8 implies an 88.6% upside from current levels.
Deutsche Bank analyst Edison Yu has rated the stock a "buy,” with the Street-high target price of $10. This forecast implies the stock can rise as high as 135.8% from current levels over the next 12 months.
Yu believes that the company's "revenue acceleration remains on track," and anticipates increased sales in 2024. Furthermore, Yu went on to say that the company's EBITDA is currently weighed down by higher expenses related to Neutron. However, he believes these expenses are critical to increasing the company's value in the space ecosystem in the future, given that it will compete with the SpaceX Falcon 9.
The Bottom Line on RKLB
Rocket Labs' success in the coming years is heavily dependent on the Neutron program and its ability to deliver more. However, there is a chance that there will be challenges along the way. That said, the company already has a successful product, which could lead to increased revenue in the future.
But it might not be enough now to turn a profit. While Wall Street's high price target of $10 is attainable, I believe Rocket Lab is also a high-risk, high-reward investment case. It would be prudent to introduce a relatively small stake in Rocket Lab while the company works on strengthening its financials.
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.
