Where Will Rocket Lab Stock Be in 5 Years?

Investors are always on the hunt for the next big thing, and the space industry could be worth watching. According to analysts at Citigroup, the opportunity could be worth a whopping $1 trillion by 2040 -- potentially generating life-changing returns for investors who get in early.

Rocket Lab (NASDAQ: RKLB) has emerged as an early favorite on Wall Street, with shares up about 600% during the past five years. But does it have what it takes to maintain the bull run? Let's dig deeper into the stock's pros and cons to decide what the next five years could have in store.

Why Rocket Lab?

Over the long term, growth in the space industry could involve a variety of exotic (and arguably far-fetched) business models ranging from asteroid mining to orbiting data centers. But for now, most of the commercial activity centers around well-established technologies like satellites and other types of equipment used to support Earth-based services like broadband internet, GPS navigation, and scientific research.

Rocket Lab serves this opportunity by providing launch services for public and private sector organizations that want to send payloads to space. Its Electron rocket has already lifted more than 262 satellites into lower Earth orbit (LEO), serving high-profile clients like NASA. The company also aims to become an end-to-end space company, offering diverse space-related solutions ranging from manufacturing, satellite components, and mission management.

First-quarter earnings show impressive progress with revenue jumping almost 64% year over year to $200.3 million -- driven mostly by its burgeoning space solutions business. The company can maintain its elevated growth rate through recent acquisitions like Mynaric AG, which provides laser optical communications terminals, and Motive Space Systems, which specializes in space robotics. Both deals look likely to synergize with Rocket Lab's existing operations and expand the breadth of services it can offer its clients.

Image source: Getty Images.

The Neutron rocket could be a game changer

While space solutions represent Rocket Lab's bread-and-butter revenue stream, its launch services business could be a make-or-break opportunity. While the company's Electron rocket has built a niche for itself in small specialized missions, its payload capacity of just 300 kilograms (660 pounds) to lower Earth orbit puts it way below the levels offered by rivals like the SpaceX Falcon Heavy, which can transport payloads of 63,000 kg.

Rocket Lab aims to solve this problem with a new launch vehicle called the Neutron, which is expected to boast a capacity of 13,000 kg, bringing it closer to the industry leaders. The economies of scale advantages could help boost revenue while lowering mission cost per payload. And the company plans to use the new rockets to expand its capabilities in opportunities like satellite constellations, which involve deploying large numbers of satellites for navigation and other space-based services.

The company expects the Neutron's inaugural flight to be in the 2026 fourth quarter. But investors should take this timeline with a big grain of salt because management has a track record of delays since the platform's original scheduled launch date in 2024.

Where will Rocket Lab stock be in 5 years?

During the next five years, investors should expect Rocket Lab's space services business to continue growing at a rapid clip, especially through acquisitions. Still, the business is still deeply in the red with a Q1 operating loss of roughly $56 million (compared to $59 million in the prior-year period), and consistent profitability looks far away.

Although the Neutron launch could be a huge near-term catalyst for the stock, investors who buy the shares now are rolling the dice, hoping there won't be further delays. And with shares trading at a price-to-sales (P/S) multiple of 53, there is plenty of room for downside if the bet goes wrong. Rocket Lab is a company to watch, but investors might want to wait for more information before considering a position.

Will Ebiefung 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.