Is Rocket Lab Stock a Buy After the SpaceX IPO?
Key Points
Rocket Lab stock has dropped 6.6% since SpaceX's IPO, but the company continues to grow revenue rapidly while narrowing its losses.
Its Neutron rocket, expected to carry heavier payloads at a discount to SpaceX's Falcon 9, will be key to unlocking new contracts.
At a price-to-sales ratio of 100, Rocket Lab isn't cheap -- but it may have more room to grow into its valuation than SpaceX does.
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Space Exploration Technologies, commonly known as SpaceX, went public on June 12, and the stock has already rocketed higher, reaching north of $200 before retreating somewhat.
You might think a rising tide would lift all (space) boats, but it hasn't. Shares of Rocket Lab (NASDAQ: RKLB), another industry player, are down about 6.6% from where it closed the day before SpaceX started trading.
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So, with all the hype around SpaceX and Rocket Lab's drop, is now the time to jump in?
Rocket Lab's financials: A mixed picture
The basic picture of Rocket Lab's financials is mixed. The company has been growing revenue rapidly and shrinking its still-negative earnings before interest, taxes, depreciation, and amortization (EBITDA). On the other hand, it's still burning significant cash as it develops, builds, and launches rockets and other spacecraft -- not exactly a cheap business.
| Metric | Figure |
|---|---|
| Revenue (TTM) | $679.6 million |
| EBITDA | ($140.1 million) |
| Cash on hand | $1 billion |
| Market cap | $67 billion |
Data source: Yahoo! Finance.
Neutron is the key
Rocket Lab's current workhorse, the Electron, is a small rocket that carries relatively light payloads to orbit. Electron can only manage about 320 kg compared to the 22,000 kg of the Falcon 9, SpaceX's workhorse. In space launch, that makes a world of difference in the size of contracts available to operators. Heavier payloads mean more lucrative deals.
That will (hopefully) soon change. Rocket Lab's Neutron rocket is scheduled to launch before the end of the year, though it's been delayed multiple times thus far.
Image source: Getty Images.
If Neutron flies on schedule and works, it could unlock a tier of revenue Rocket Lab can't touch right now. And it may help the (comparatively) small company truly compete with SpaceX, which dominates the market at present. When complete, Rocket Lab expects Nuetron to be able to fly missions at a meaningful discount to the Falcon 9.
The valuation: Rich, but with some headroom
Even after the recent pullback, Rocket Lab trades at a very rich multiple. With revenue just shy of $680 million over the last 12 months and a market capitalization of about $68, Rocket Lab's price-to-sales (P/S) ratio is a cool 100. Amazingly, that's actually a bargain compared to SpaceX stock's 130 times sales, but it's not cheap by any stretch of the imagination.
Is Rocket Lab stock a buy after the SpaceX IPO?
Here's the thing: This is definitely a high-risk stock and not for most investors. If, however, you have a long investing horizon and an appetite for risk, it can be an interesting pick. Although they're relatively close in their raw P/S, I think Rocket Lab has a better chance of growing into its valuation than SpaceX. There's simply more headroom for Rocket Lab.
Should you buy stock in Rocket Lab right now?
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Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Rocket Lab. The Motley Fool has a disclosure policy.
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