I'd Double A Position in This Space Economy Stock Right Now With No Hesitation
Key Points
After initially surging on the Iridium acquisition news, Rocket Lab shares have since tanked.
Concerns run high that the deal will impact the space company's overall growth, and in turn, its valuation.
Considering the potential for cost and growth synergies, buying today's dip could prove profitable in the long run.
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After falling more than 35% over the past month, Rocket Lab's (NASDAQ: RKLB) latest price action may seem troublesome. However, this sharp pullback looks like an opportunity to bottom-fish in this popular space stock.
Yes, the shift in sentiment does have substance. After an initial wave of enthusiasm, investors are now having second thoughts about the company's recent acquisition plans. While this pending deal has negatives, its long-term impact on Rocket Lab's future growth and valuation could offset the initial uncertainty.
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Why investors turned bearish on Rocket Lab
On June 29, Rocket Lab, a satellite launch and manufacturing company, announced plans to acquire Iridium Communications (NASDAQ: IRDM) in an $8 billion cash-and-stock deal. As this transaction adds Iridium's satellite network and space telecom business to Rocket Lab's existing capabilities, post-acquisition, Rocket Lab could become a smaller version of Space Exploration Technologies, aka SpaceX.
In fact, it was these SpaceX stock comparisons that initially drove investors to respond positively to the deal announcement, rocketing the rocket stock from the mid $80s to just over $100 per share. Since then, however, shares have fallen back to Earth, and then some. Right now, the stock is hovering just around $70 per share. Initially intrigued by Rocket Lab becoming a possible "SpaceX in the making," the concern now is how this merger affects future growth.
A slowdown today, a resurgence tomorrow?
For now, weakness could persist with Rocket Lab shares. The market is still trying to figure out how to value a company that's diluting its growth rate by acquiring a more mature, already profitable business.
Yet while the initial growth dilution could weigh on shares, this deal could prove worthwhile in the long run. By acquiring a profitable business, Rocket Lab will have greater capacity to self-fund its organic growth efforts, including major projects such as its upcoming Neutron line of reusable rockets.
Also consider the deal's many likely cost and growth synergies. After a one-time slowdown could come a growth resurgence, driving a recovery in its shares. Given this, I'd consider going against the grain and doubling down on a position.
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Thomas Niel 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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