1 Monster Space Stock I'm Watching This Earnings Season
Key Points
Rocket Lab is taking aim at SpaceX's dominance of the rocket launch industry.
The upstart competitor plans to debut its new rocket later this year.
But shares of the stock look expensive right now.
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Space economy stocks have been receiving greater attention lately as a result of the Space Exploration Technologies (SpaceX) initial public offering (IPO) and the race to build infrastructure for sending, monitoring, and operating services in orbit (and possibly beyond).
One company nipping at SpaceX's heels is Rocket Lab (NASDAQ: RKLB). It has laid out an ambitious plan to build a vertically integrated space flight business, and it will report second-quarter earnings within the month.
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Here's why I will be watching the fast-growing space stock this quarter, and what would make the stock a buy for my portfolio.
Image source: Getty Images.
Neutron progress and more contracts
Rocket Lab built its reputation as a niche player in the rocket launch business with its small Electron rocket. It does not deliver massive payloads to orbit, but it can be a great solution for smaller projects, having made 82 orbital flights with 78 successful missions for customers.
Currently, Rocket Lab is developing a larger rocket, the Neutron, to directly compete with SpaceX, and it is close to making its debut. The maiden flight for the Neutron is planned for the fourth quarter of this year, and investors will likely ask for updates in the company's upcoming earnings report. Neutron signed five new launch orders just last quarter, showing the strong demand for what could be a huge revenue growth driver for Rocket Lab in the years ahead.
Outside of launches, Rocket Lab has built many other successful spaceflight business units, including satellite assembly, electric propulsion, and orbital communications. I hope to receive more updates on its business roadmap in the second quarter as the commercial space race heats up.
Rocket Lab's backlog is now $2.2 billion, up over 100% from a year ago. Investors should expect more growth in the metric this quarter, which will help set the foundation for a growing business in the years ahead.
Should you buy Rocket Lab stock?
There is no denying Rocket Lab's growth as a business. Along with SpaceX, it is one of the few companies that has successfully tackled the space economy, building a reliable launch-and-services business alongside it.
Over the past 12 months, Rocket Lab's revenue totaled $680 million, and it has grown by over 1,000% in the last five years. It wouldn't be surprising to see the business grow by more than 10 times again in the next five years, generating billions in annual revenue by 2030.
The problem is the stock's valuation today. Rocket Lab has a market capitalization of $50 billion and a trailing revenue of under $1 billion, and the business is capital-intensive and currently unprofitable. This creates a significant hurdle for Rocket Lab to deliver positive returns to shareholders going forward.
Despite the current fascination with the space economy, Rocket Lab stock is overvalued today. This is a stock to track closely, but keep on the watch list for now.
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Brett Schafer 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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