Rocket Lab stock popped this week. Here’s why.

Actions of Rocket Lab USA (RKLB 12.58%) rose more than 15% at one point this week, according to data from S&P Global Market Intelligence. The new rocket launch and space flight company is building on its big ambitions by increasing revenue and backlogs for existing launch systems in its second-quarter earnings report. It also announced a progress update for its large Neutron missile system.

As of this writing, at the close on Friday, August 9, the stock price is now above $5. Here’s why Rocket Lab stock soared this week.

Increase in revenue and arrears

Rocket Lab is the only company outside of SpaceX that reliably launches rockets for commercial customers. It entered the market with a small rocket system called the Electron, which is now reaching launch milestones faster than any other rocket in history. More frequent launches are essential for any rocket company. Successful launches equate to revenue generation, which must reach a certain threshold to cover the fixed cost of the launch and production facilities.

The Electron rocket launches more frequently in 2024 compared to 2023, driving revenue up 71% year-over-year in the second quarter to $106 million. He has now signed 17 new releases till date. Equally important is Rocket Lab’s space systems segment. These are products like satellite development and solar panels, which further vertically integrate Rocket Lab’s operations. Add both, and the company now has more than $1 billion in stock, giving it a clear line of sight for future revenue.

With strong growth and a growing backlog, it’s no surprise to see Rocket Lab stock up more than 10% this week.

Profits depend on a successful Neutron missile

Another positive note in the quarter was progress updates for the larger Neutron rocket that Rocket Lab is developing. It will be much bigger than Electron, which can generate even more sales for the company. The engine for the Neutron has been tested for the first time and the carbon fiber production facilities are in place. The plan is to have Neutron operational for customers within a few years.

Rocket Lab needs the Neutron rocket to be successful for the stock to work. Right now, it spends more than $75 million on research and development each quarter, which keeps profits and cash flow in the red. However, once the Neutron system becomes operational, it should contribute to a gradual change in revenue generation.

At $5, Rocket Lab still looks like a risky stock, but one with plenty of upside. If you want to buy the stock, make it a small position in your portfolio.