Why Rocket Lab Is Up Big Today

Rocket Lab USA (NASDAQ: RKLB) has been selected to bid for billions in future launches planned by the United States and United Kingdom.

Investors are excited about the opportunities these selections create, sending Rocket Lab shares up as much as 15% on Tuesday morning and up 9% as of 11:30 a.m. ET.

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Broadening its potential

Rocket Lab is one of several space stocks to emerge in recent years, and the company arguably has done more than anyone else in that class to establish itself as a reliable operator. Launch customers, particularly government launch customers, do not want to do business with unproven start-ups.

The company's latest selection should help its progress. Rocket Lab said it has been selected to provide hypersonic test launch capability through separate U.S. Air Force and U.K. Ministry of Defence programs. The scope of the programs is broad: The Air Force has up to $46 billion to spend through 2031, and the U.K. has $1.3 billion to allocate.

To be clear, the announcement does not mean Rocket Lab has been awarded all that revenue. What it means is Rocket Lab has been cleared to bid on the work.

Is Rocket Lab stock a buy?

For all the progress Rocket Lab has made in recent years, it does not match the gains made by the company's share price. Rocket Lab shares have more than doubled in the last six months (and at one point, were up more than 200%) as investor excitement about the company and its potential has grown.

The excitement is justified, but the actual business will take years to live up to its promise. Trading at more than 20 times sales, Rocket Lab shares can hardly be called a bargain. For those who want in on the new space race, Rocket Lab is among the most attractive investment candidates. But those buying today should expect volatility and keep this high-priced stock to a small part of a well-diversified portfolio.

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Lou Whiteman has positions in Rocket Lab USA. The Motley Fool recommends Rocket Lab USA. The Motley Fool has a disclosure policy.