Where Will Rocket Lab Be in 3 Years?

Crystal balls are said to be useful items -- but very hard to come by for investors. For better or worse, investors in Rocket Lab (NASDAQ: RKLB) stock have something very close to a crystal ball: hard numbers, laid out by management and by Wall Street analysts, telling them where Rocket Lab stock will be in three years.

Are you thinking about investing in America's second most prolific launcher of space rockets (after SpaceX), and owning the stock for the long term? If so, it's probably a good idea to at least consider these numbers before making your decision.

Where Rocket Lab stock is today

Rocket Lab reported its Q3 earnings just one week ago, and it was kind of a good news, bad news report.

The good news is that Rocket Lab's rocket launching business is growing briskly. Through October, the company has launched 12 times in 2024, versus just 10 launches in all of 2023. Sales surged 55% year over year in Q3 -- and Rocket Lab promised to double that growth rate in Q4, as sales rise as high as $135 million.

The bad news is that Rocket Lab still isn't earning a profit on these sales. Rocket Lab lost $0.10 per share in Q3, which was less money than Wall Street had forecast it would lose -- but still 25% more losses than it suffered in Q3 2023.

What Rocket Lab expects to do between now and 2027

The other good news, though, is that in spite of the losses, Rocket Lab continues to invest in its next-generation reusable space rocket, the Neutron medium-lift vehicle. Originally scheduled to begin launching in 2024, Neutron isn't going to hit that target, but it probably will launch in 2025.

What's more, Rocket Lab revealed that it has already signed a customer to fly on Neutron at least twice, with the potential for "many more" launches, as this as-yet-confidential customer potentially uses Neutron to deploy its entire planned constellation of satellites.

Just don't expect this to happen all at once.

In a post-earnings conference call with analysts, Rocket Lab CFO Adam Spice predicted Rocket Lab will only launch Neutron one time in 2025, a test launch. After that, the company will ramp up Neutron's commercial cadence slowly, launching three times in 2026, and five times in 2027.

CEO Peter Beck added that in subsequent years, investors should expect Neutron to launch annually seven times "and beyond." He also confirmed that each Neutron launch will be priced in the $50 million to $55 million range -- significantly more than Electron, which costs $8.2 million on average.

What analysts think Rocket Lab will earn in 2027

So Rocket Lab has continued strong demand for its Electron rocket, and promising prospects for Neutron through 2027 and beyond. Indeed, as Beck put it, "of all the things we worry about ... demand is not one of them." Sales growth looks good in both the company's market segments, and profit margins are improving as well.

What does all this mean for Rocket Lab's future finances? What are analysts expecting?

According to the latest estimates from S&P Global Market Intelligence, Wall Street analysts forecast that Rocket Lab will lose money this year, lose a little less money next year, and finally come close to breaking even the year after that. It's only in 2027 that they expect the company to earn its first profit -- around about the time Neutron hits a cadence of launching roughly every other month.

Is Rocket Lab stock a buy?

In 2027, analyst see Rocket Lab earning $80 million on $1.25 billion in revenue, which isn't a lot of profit for a stock that currently costs (check notes) $10.2 billion. It's actually a price-to-earnings ratio of 128 -- a lot of money to pay for earnings that might or might not materialize as expected.

On the plus side, with Neutron fully developed, and no longer consuming so much cash for research and development, analysts forecast that Rocket Lab will generate $280 million in positive free cash flow that year, resulting in a more palatable 36.6 price-to-free-cash-flow ratio. And that free cash flow should be increasing at a brisk clip -- rising perhaps 36% between 2027 and 2028.

Admittedly, all of the above probably assumes an "everything goes right for Rocket Lab" scenario, and things could certainly go wrong between now and then. Given the risks, I'm hesitant to recommend buying Rocket Lab stock at its current valuation. The only way I see today's valuation being reasonable, therefore, is if everything in fact does go right for the next three straight years.

So fingers crossed.

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Rich Smith has positions in Rocket Lab USA. The Motley Fool recommends Rocket Lab USA. The Motley Fool has a disclosure policy.