Could Buying Rocket Lab Stock Today Set You Up for Life?
Key Points
Rocket Lab has a promising position in launching services, and it's making a big push into the communications space.
The company is set to acquire Iridium Communications for roughly $8 billion in a half-cash, half-stock deal.
Rocket Lab stock is risky, but it could deliver huge returns.
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Rocket Lab (NASDAQ: RKLB) is one of the clear-cut leaders in space technology. In fact, the company is second only to Space Exploration Technologies in providing rocket-launching services for third-party customers. A recent acquisition move suggests that the company will be making more challenges to SpaceX in another category.
Rocket Lab recently announced that it had signed a deal to acquire Iridium Communications (NASDAQ: IRDM), a provider of satellite-based mobile communication services. The space tech specialist is on track to pay $8 billion to acquire Iridium in a half-cash, half-stock deal. Through the acquisition, Rocket Lab is poised to become a major competitor to SpaceX's Starlink service.
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With this major acquisition on the horizon, is Rocket Lab a stock that could set investors up for life?
Image source: Getty Images.
The future is bright
Even though Rocket Lab stock is trading down roughly 32% from its all-time high, its share price is still up roughly 187% over the last year of trading. As I write this, the company has a market capitalization of roughly $58.6 billion and is valued at approximately 64 times this year's expected sales. Notably, the company has built an impressive track record of delivering results that come in ahead of the market's expectations.
On May 7, Rocket Lab published results for the first quarter of its current fiscal year, which ended March 31. Sales increased 63.5% year over year in the period to reach $200.3 million, surpassing the average analyst estimate by roughly $11 million. Meanwhile, the company's loss per share of $0.02 in the period came in lighter than the average analyst estimate of $0.04.
Now, the company is seemingly on track to close its acquisition of Iridium Communications in the first half of 2027. While the deal closing and likely integration of Iridium could cause volatility for Rocket Lab stock, bringing the satellite mobile company into the fold looks like a promising move.
In the rocket launch services market, Rocket Lab is still far behind SpaceX in market share. On the other hand, the company has a strong position in the category compared to other players in the industry. With the company poised to use that strength to create synergies with Iridium's satellite mobile services business, the pending combination looks very promising.
The combination of the businesses should also dramatically boost Rocket Lab's margins. While Rocket Lab posted a net loss of $198.2 million last year, Iridium posted a net profit of roughly $114.4 million.
While it's unlikely that Rocket Lab will surpass SpaceX in market share in rocket launch and communications services anytime soon, it probably doesn't need to do so to deliver big wins for long-term investors. These areas of the space industry are large enough to support multiple winners, and long-term Rocket Lab investors could wind up booking huge returns, even though it should be understood that the stock carries a high degree of risk.
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Keith Noonan 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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