Prediction: Here's What a $10,000 Investment in Rocket Lab Will Be Worth in 5 Years
Key Points
Rocket Lab stock gained 560% over the last five years.
The company is expected to earn its first profit in 2028 and then grow rapidly from there.
Additional profit will come from the acquisition of Iridium, and earnings might reach $1.3 billion in 2031.
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Rocket Lab (NASDAQ: RKLB), the once-tiny space stock that wants to be Space Exploration Technologies when it grows up, held its IPO (albeit as a special purpose acquisition company) just over five years ago. If you'd put $10,000 into Rocket Lab back then, you'd be sitting on more than $65,000 today -- a total return of more than 560%.
And good for you if you did that! Newer investors, though, may be more interested in knowing what $10,000 invested in Rocket Lab stock now will be worth in another five years.
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And that's what I'm going to try to figure out today.
Image created by JesterAI.
The trouble with forecasts
Allow me to begin with a disclaimer: No one knows for certain what will happen to Rocket Lab over the next five years. It could explode (in a good way), delivering another 560% return. Or it could explode in a very bad way, for example, if one or more Rocket Lab rockets literally blow up on launch, shaking investor confidence in the space company.
The truth is, anything can happen in half a decade. Bear that in mind as you continue reading.
What analysts say
An inability to know the future has never discouraged Wall Street's best and brightest analysts from trying to predict it. In the case of Rocket Lab, analyst forecasts see Rocket Lab turning profitable for the first time in 2028 and steadily increasing its earnings power to as much as $1.1 billion by 2031.
Rocket Lab might become even more profitable on a cash basis that year, generating positive free cash flow of $1.5 billion -- and that's just to start with.
In June, Rocket Lab announced it would acquire iconic satellite communications company Iridium Communications in an $8 billion deal slated to close in mid-2027. Iridium is already profitable and free cash flow positive. Although a slower grower than Rocket Lab, the company is expected to grow its profits by 13% annually over the next five years.
By 2031, this might result in $190 million in profit and more than $570 million in free cash flow.
How much will Rocket Lab be worth in five years?
If the merger happens as planned next year and both companies (now independent) continue to grow as analysts anticipate, by 2031, a combined Rocket Lab-plus-Iridium might conceivably earn $1.3 billion and generate more than $2 billion in free cash flow annually.
How much would this be worth to investors?
That depends largely on the multiple-to-earnings that investors would be willing to pay for a slower-growing Rocket Lab five years from now. Would they pay, for example, the 54x trailing earnings valuation that Iridium alone fetches today?
With analysts forecasting Rocket Lab's earnings to grow by an average of 60% from 2030 to 2035, that seems reasonable to me -- maybe even conservative. And if I'm right, a valuation of $70 billion (or 75% more than Rocket Lab's current $40 billion market capitalization) seems reasonable.
This is only a guess, of course, albeit as educated a guess as I can make. But if I'm right, a $10,000 investment in Rocket Lab could be worth $17,500 in five years.
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Rich Smith has positions in Rocket Lab. The Motley Fool has positions in and recommends Rocket Lab. The Motley Fool has a disclosure policy.
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