Is Rocket Lab USA Stock a Buy Now?

Last year was a record for Rocket Lab USA (NASDAQ: RKLB), with significant milestones and achievements in the aerospace industry.

Its flagship Electron rocket continued to prove its worth, making Rocket Lab a key player in the market for small satellite launches and the No. 2 launch company in the U.S., behind only SpaceX. It is also making strides in developing its larger launch vehicle, which promises to expand its capabilities further and support a broader range of missions.

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That said, the stock has surged 480% higher over the past year, resulting in a lofty valuation. Let's dive into the company and its growth prospects to see if it's a good buy today.

Rocket Lab's growing launch business

Rocket Lab USA has become an essential partner for companies aiming to launch small satellites into orbit. With its flagship rocket, the Electron, it is able to conduct frequent and cost-effective missions for clients with smaller payloads. Last year was a banner year for the company, as it successfully completed 16 launches, reflecting 60% growth compared to 2023.

In addition to launch services, Rocket Lab has a robust space systems business. The company provides spacecraft engineering and design services, components, and manufacturing, among other services. The two businesses complement each other well, and it has seen more growth from space systems recently.

The increasing launch cadence and growth in space systems have helped Rocket Lab grow its revenue by 65% to $304 million through the first three quarters of last year. Its gross profit has also more than doubled to $79 million. However, it spends significantly on research and development and administrative expenses and has an operating loss of $138 million over that same period.

RKLB Revenue (Quarterly) data by YCharts.

It faces stiff competition from SpaceX

Rocket Lab has made headway as the No. 2 orbital launch rocket in the U.S. However, it remains far behind SpaceX, which dominates the market. Last year, SpaceX completed 134 orbital launches with its Falcon family of rockets. Two of these launches were with its Falcon Heavy vehicle, with the remainder using the Falcon 9.

SpaceX has an edge over Rocket Lab in its ability to carry heavier payloads with its rockets. The difference is staggering. Falcon 9 can carry up to 13,000 kilograms (about 28,600 pounds), while the Electron carries up to 660 pounds. Meanwhile, Falcon Heavy has a carrying capacity of more than 66,000 pounds, allowing it to launch huge payloads for large satellites or interplanetary missions.

Rocket Lab is working on its Neutron rocket, which aims to bridge this gap and offer more-competitive payload capacities in the future. Given its similar carrying capacity of 28,600 pounds, this launch vehicle would compete directly with the Falcon 9. The larger launch vehicle would also earn it around $50 million to $55 million per launch, helping the company unlock revenue and profit that is six times greater than what the Electron produces.

What's next for Rocket Lab

In August, Rocket Lab fired its Archimedes engine (used for its Neutron launch vehicle) for the first time at NASA's Stennis Space Center in Mississippi. CEO Peter Beck says the tests will keep it on track to launch the Neutron by mid-2025.

A Rocket Lab Electron launch vehicle. Image source: Rocket Lab USA.

The company continues to enjoy strong demand from customers for its launch services. In early February, it signed a deal with a Japanese Earth imaging company, the Institute for Q-shu Pioneers of Space, for three missions this year and another in 2026.

During the company's November earnings call, it said it had a backlog of over $1 billion for future launches, showing robust demand for its services. Investors will get an update on this number when the company announces earnings later this month.

Is Rocket Lab USA a buy today?

Rocket Lab USA's stock has become more expensive over the past year, reflecting investor optimism about its growth and its improving launch cadence, as well as the prospect of higher margins from its Neutron rocket.

The stock trades at a lofty valuation of nearly 38 times trailing-12-month sales, and the business has yet to generate a profit. Analysts project it could bring in $605 million in revenue in 2025, but don't expect it to achieve positive earnings per share (EPS) until 2026. Even based on these estimates, Rocket Lab trades at 23 times forward sales.

It's making solid progress, and the Neutron could be an important inflection point for the space company. However, if the Neutron launch is pushed back, or if launches don't occur as expected, it could impact revenue timing and lead to further volatility, especially with the stock priced so high today.

For that reason, Rocket Lab USA is best suited for aggressive, growth-focused investors looking to gain exposure to space stocks and who don't mind the volatile ride as it builds on its position in the emerging space economy.

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Courtney Carlsen has no position in any of the stocks mentioned. The Motley Fool recommends Rocket Lab USA. The Motley Fool has a disclosure policy.