Is Rocket Lab Stock a Millionaire Maker?

Key Points

• Rocket Lab's progress justifies the stock's recent run although it may have gone a bit too far.

• Establishing its Neutron rocket is crucial for Rocket Lab to become a viable alternative to SpaceX.

• That said, it's very early, which makes the stock a high-risk, high-reward investment at this point.

• 10 stocks we like better than Rocket Lab ›

Owning shares of Rocket Lab (NASDAQ: RKLB) has probably felt like defying gravity. The stock has soared nearly 800% over the past year. Wall Street has rewarded the company's arrival as a legitimate competitor in the space industry, a market opportunity that McKinsey & Company estimates could reach $1.8 trillion over the next decade.

When share prices multiply, even modest investments can change portfolios, and sometimes change lives. Following the stock's lift-off, Rocket Lab now has a market value of $23 billion. Does the stock still have enough investment upside to be a potential millionaire-maker moving forward? Here is what you need to know.

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Gauging Rocket Lab's valuation relative to SpaceX

It's not every day that stocks go up so much in such a short amount of time. Therefore, it's wise to evaluate where Rocket Lab's stock stands following its exciting ascension.

The company has worked to establish itself as a player in the growing rocket launch and services business, a field currently dominated by Elon Musk's SpaceX. Rocket Lab has found success with its Electron rocket, using it to deliver small payloads to space. It has already become the second-most-frequently launched rocket in the United States annually.

It was clever for Rocket Lab to start with small payloads, where there is less competition from SpaceX. SpaceX's bread and butter is in heavier payloads.

Wall Street has seen enough progress from Rocket Lab to value the stock at a level closer to SpaceX. Although SpaceX is still a private company, there is information available. For instance, Elon Musk has estimated that SpaceX will generate approximately $15.5 billion in revenue in 2025. The company is also reportedly planning an insider share sale based on a $400 billion valuation.

Doing the math, SpaceX's price-to-sales (P/S) ratio is approximately 26. Analysts estimate Rocket Lab's 2025 revenue at $576 million. At a $23 billion market cap, shares currently trade at a P/S ratio of 40. The stock probably deserved a boost from where it traded a year ago, but one could easily argue that its current price already includes some of the company's future growth at this point.

Looking at what's next for Rocket Lab

Rocket Lab's natural progression is to expand further into SpaceX's domain, and it is doing so with its upcoming medium-lift, reusable rocket, the Neutron.

The U.S. government could help Rocket Lab get Neutron off the ground. The U.S. Space Force selected Rocket Lab as part of its National Security Space Launch (NSSL) program, and Rocket Lab has successfully on-ramped. It is one of five launch companies currently in the program.

Rocket Lab has also signed a contract with the U.S. Air Force to conduct a rocket-based point-to-point transportation system experiment. The mission will utilize the Neutron and occur no sooner than next year.

The goal here is for Rocket Lab to establish itself as a legitimate alternative to SpaceX. The U.S. government has become somewhat dependent on SpaceX. The falling out between Elon Musk and Donald Trump could work to Rocket Lab's advantage throughout the remainder of Trump's presidency, if the government pushes to spread its launch business around more.

If Rocket Lab executes its early contracts well, it could easily lead to far more business coming its way from the government and elsewhere.

Is Rocket Lab a millionaire maker?

Still just a $23 billion company, Rocket Lab could be a millionaire-maker. Hypothetically speaking, growing to SpaceX's current valuation would mean Rocket Lab increasing by more than 17 times its current price.

That said, Rocket Lab still has a long way to go before such scenarios are even remotely plausible. To be clear, Rocket Lab is not yet at SpaceX's level. It's still not close. It starts by establishing its Neutron rocket in the same way it has found traction with Electron.

That would solidify Rocket Lab as a viable competitor to SpaceX and open the door for investors to look further into the future. Launch activity is growing in both the government and private sectors, so it's an exciting time. Wall Street analysts anticipate Rocket Lab's revenue jumping to $904 million next year.

Still, Rocket Lab remains a very speculative stock for now. If you do buy, consider waiting for a pullback. The stock has fallen by over 40% from its high multiple times in the past few years, so investors will likely have opportunities to buy at a better price.

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Justin Pope 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.