The rise of the space economy has resulted in unprecedented demand for satellite launches, thanks to private sector involvement, artificial intelligence (AI), and renewed government focus. According to McKinsey & Company, the global space economy is expected to be worth $1.8 trillion by 2035.
Founded in 2006, Rocket Lab (RKLB) is emerging as a major player in the aerospace and space technology industry. Rocket Lab has established itself as a formidable competitor in this burgeoning market, thanks to its innovative approach to small satellite launches and an expanding portfolio of space systems solutions.
The company has gained popularity for its Electron rocket, a small launch vehicle used to launch small satellites. However, the company is also developing the Neutron rocket, which is intended for larger payloads and reusability. This could increase its market reach, allowing it to compete with market leader Elon Musk's private company Space X.
RKLB reported a strong third quarter, citing strong demand for Electron and strategic partnership agreements that could boost its future. While Rocket Lab stock had a slow start to the year, shares have now risen an impressive 335% this year, outperforming the S&P 500 Index's ($SPX) 25.5% gain.
Let's see if RKLB stock is a buy after its third-quarter earnings.
Rocket Lab Stock is Soaring High
Rocket Lab's financial trajectory reflects the company's growth as a market leader in small satellite launches. The increasing frequency of Electron launches and the company's expansion into space systems have all contributed to consistent revenue growth. The Electron rocket is a small launch vehicle designed to place small satellites in low Earth orbit (LEO) with a lift capacity of approximately 300 kilograms.
Rocket Lab has expanded its business beyond launch services to include satellite manufacturing and space systems. The company provides comprehensive solutions, including satellite components, spacecraft, and mission management services.
In the third quarter, revenue increased by 55% year on year to $105 million. The company has completed over 1,700 missions worldwide. In November, the company completed the 54th Electron mission, the 12th launch in 2024. It has additional Electron launches planned for the remainder of the year. Companies in the telecommunications sector rely on small satellites to deliver their services, which is boosting demand for Electron.
Rocket Lab has also developed the Neutron rocket, a medium-lift launch vehicle capable of carrying 13,000 kilograms to low Earth orbit. Rocket Lab's development of the Neutron rocket may enable it to compete in the medium-lift segment, but it faces stiff competition from established players such as SpaceX's Falcon 9. Success in this area would greatly increase Rocket Lab's addressable market, but the execution risk is high.
The company has signed a multi-launch agreement with an undisclosed commercial satellite constellation operator. As part of the contract, two dedicated Neutron missions will be launched in mid-2026. The company also signed a federal defense contract for Neutron.
Furthermore, the company completed and delivered two spacecraft for NASA's ESCAPADE mission to Mars.
RKLB is Not Yet Profitable
The company is still not profitable, which is common for emerging space companies that invest heavily in R&D and infrastructure. In the most recent quarter, it reported a net loss of $0.10 per share, compared to $0.08 the previous year. The adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) loss stood at $30.8 million. The company expects an adjusted EBITDA loss of $27 million to $29 million in the fourth quarter of 2024.
Rocket Lab ended the quarter with $292.4 million in cash and cash equivalents. Its debt-to-equity ratio of 0.96 is high, as the development and operation of rockets and space systems require substantial capital. Rocket Lab's ability to raise funds without diluting shareholder value and burdening its balance sheet will be critical to its continued growth.
A $1.05 billion backlog (unrealized revenue) reflects the high demand for launches. Management expects revenue to be between $125 million and $135 million in the fourth quarter, a 108% to 125% increase, in line with analyst estimates.
Analysts covering the stock predict that revenue will increase by 77.4% in 2024, followed by 37% growth in 2025. Analysts predict that losses will eventually decrease by 2025. Rocket Lab's stock is trading at 19 times forward sales, which is steep.
What Does Wall Street Say About Rocket Lab Stock?
Overall, Wall Street's stance on Rocket Lab remains unchanged from before the Q3 earnings. Analysts are moderately bullish about RKLB, and eight of the 13 analysts who cover the stock rate it as a "strong buy," with the remaining five rating it a "hold."
Following an outstanding rally this year, the stock has surpassed its average target price of $19.95. Its high target price of $30 implies a 24.7% increase from current levels.
Citi analyst Jason Gursky maintained a "buy" rating on the stock and raised RKLB's target price to $22 from $13. Gursky was pleased with the company's third-quarter results and fourth-quarter outlook, adding that the successful booking of the first customer for the Neutron rocket indicates "a strong market acceptance and enhances the credibility of the product, suggesting a potential upside beyond what management currently anticipates."
Gursky also stated that the new federal defense contract and a multi-launch agreement for Neutron demonstrate Rocket Lab's growth potential.
Separately, Bank of America Securities analyst Ronald Epstein gave RKLB stock a "buy" rating and its Street-high price target of $30. Epstein believes that Electron's rapid growth, the upcoming launch of the Neutron rocket, and the company's strategic partnerships with government and commercial partners will all contribute to significant revenue growth in the coming years.
Furthermore, Cantor Fitzgerald and TD Cowen reiterated their bullish ratings on the stock.
The Bottom Line On RKLB Stock
Long-term investors with a high risk tolerance may see significant returns as Rocket Lab matures and scales its operations.
However, space launches are inherently risky, and any failure could jeopardize Rocket Lab's reputation and financial success. The success of the Neutron rocket and other innovations will determine the company's long-term prospects. As a result, starting with a small stake and closely monitoring its progress is a good first step.
