Rocket Lab Stock Is Up Over 800% in 12 Months. Is It Too Late to Invest?

Key Points

• Rocket Lab has launched 68 Electron rockets and will debut its larger Neutron rocket this year.

• The company achieved 78% growth last year, but it's nowhere near being profitable just yet.

• Following the stock's huge surge in value, analysts believe the stock is due for a drop in price.

• These 10 stocks could mint the next wave of millionaires ›

Investing in a stock that has accumulated significant returns in a short time period can be both exciting and nerve-wracking. On the one hand, you may be eager to jump on the bandwagon in the hopes of generating some fantastic gains. But on the other, you may be worried about a possible correction or sell-off taking place, especially as early investors take profits.

One of the hottest stocks on the market over the past year has been that of Rocket Lab (NASDAQ: RKLB). In just the past 12 months, it has risen by an incredible 830% (returns as of Aug. 4). That means if you had invested $5,000 into the business back then, you'd be up to around $46,000 today. It's an incredible performance, but it begs two questions: What is behind such a staggering return, and is it too late to invest in the stock?

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I'll aim to answer both of those questions below.

Image source: Getty Images.

Why is Rocket Lab stock so hot?

There aren't many big space stocks to invest in publicly, and so when a company like Rocket Lab starts to show some encouraging progress, investors take notice. Back in June, Rocket Lab launched its 68th Electron rocket, with the company boasting of a 100% mission success rate in its launches this year, a great sign of its success and reliability.

The company has been growing its sales at a high rate. It generates revenue from its launch services, spacecraft design services, and spacecraft components, along with other space-related products and services. Last year, its top line came in at $436 million, which was a 78% increase from the $245 million it reported in 2023.

Its growth rate has come down but Rocket Lab is still expecting growth of around 30% right now. With the company expanding into Europe and working closely with the U.S. government, investors remain optimistic about its growth opportunities in the long run.

Can the stock still surge higher?

While Rocket Lab has been red hot over the past year, there's still the possibility for even more excitement and upside, and that's due to its larger Neutron rocket. The Neutron, which is a partially reusable rocket, can carry higher payloads than the Electron (around 28,700 pounds versus just 660 pounds). The U.S. Air Force Research Laboratory is planning a mission with the Neutron rocket as early as next year.

The big event investors are eagerly anticipating is the debut and test of the Neutron rocket. While a firm date hasn't been set, the company has previously said it should be ready for the second half of 2025. A successful launch could give investors confidence that the company may be on the cusp of much more growth ahead, as Neutron would help Rocket Lab tap into greater opportunities, serving a wider range of customers, and potentially improving its margins as well -- Rocket Lab's net loss totaled $190 million last year, which was more than the $183 million loss it incurred in the previous year.

Currently, the stock trades at close to 50 times its revenue and book value. Its a steep valuation and analysts also believe it may be due for a decline as the consensus analyst price target of less than $36 implies a downside of around 20% from where it trades today.

Should you invest in Rocket Lab stock today?

Rocket Lab has a promising future but the risk for investors is that they're already paying for it, based on the stock's egregious valuation. At such a high premium, expectations are enormous for the stock and there's plenty of downside risk should it falter or if its Neutron launch doesn't go according to plan.

At the same time, the opportunities in space exploration can be plentiful and garner a lot of demand from various government agencies. I don't think it's too late to invest in the business given its encouraging growth prospects, but you'll need to be willing to accept the risk that comes with the stock and the potential volatility that lies ahead with Rocket Lab, given its deep losses and high market cap.

If this is all too much risk, you may want to prefer going with safer growth stocks instead.

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David Jagielski 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.