Why Rocket Lab Stock Soared 155% in November

Source The Motley Fool

Shares of Rocket Lab (NASDAQ: RKLB) soared 155% in November, according to data from S&P Global Market Intelligence. The space flight and rocket company keeps announcing new missions and posted a promising earnings result in the month. Aiming to compete with SpaceX, Rocket Lab is growing its ambitions and further separating itself from the rocket start-up pack.

As of this writing, Rocket Lab stock is up 355% year to date. Here's why it was soaring yet again in November.

Fast growth, new capabilities

In the third quarter of 2024, Rocket Lab posted more strong growth. Revenue was up 55% year over year to $105 million. In the last three years, Rocket Lab has grown its sales by a cumulative 484%, making it one of the fastest-growing businesses in the world. The company is increasing its launch cadence for its small Electron rocket, which is leading to more launch revenue and more sales for its space systems products. Its customer backlog hit $1.05 billion in the quarter, which is more than two years of its current revenue levels.

Looking forward, there are expectations that Rocket Lab will keep up these impressive growth figures. The company launched two Electron rockets in the same 24-hour period in November, while also signing multiple contracts with the government and getting $24 million in funding from the CHIPS Act. Most importantly, Rocket Lab signed an agreement for multiple launches on its upcoming Neutron rocket. The Neutron rocket will be larger than the Electron, which means more revenue per launch. It is expected to begin commercial operations within the next few years and is something investors should track closely when it comes to Rocket Lab stock.

Temper your expectations, for now

Even though Rocket Lab's business is doing admirably, the stock is getting ahead of itself, especially last month. Its price-to-sales (P/S) ratio has reached 33, which is a heavy premium to the average stock on the market. It has a market cap of $11.4 billion. Even if Rocket Lab's annual revenue grows to $1 billion, it will still trade at a P/S above 10.

Another concern is the lack of profitability. Rocket Lab has never generated a positive operating profit or free cash flow. This is a risk that shouldn't be ignored by investors. Rocket Lab is a fascinating company, but not one an investor should buy today due to its extreme P/S and historical lack of profitability.

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Brett Schafer has no position in any of the stocks mentioned. The Motley Fool recommends Rocket Lab USA. The Motley Fool has a disclosure policy.

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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