Prediction: This will be Rocket Lab’s biggest growth driver through 2030

Growth investors would love to get their hands on SpaceX stock. The space economy is booming and projected to reach $1 trillion in spending by 2030, and SpaceX is the clear leader in the industry.

The problem is that the rocket company is privately held and already has an estimated value of $200 billion.

So how does an investor gain exposure to the space economy? Come in Rocket Lab USA (RKLB 4.15%). The upstart rocket company is SpaceX’s only true private competitor and trades at a much smaller market cap. Here’s why it has so much potential, as well as what can drive the company’s growth for the rest of this decade.

SpaceX may no longer have a monopoly on rocket launches.

Small missiles and vertical integration

Rocket Lab was launched in New Zealand by Peter Beck and has since expanded to the United States, the world’s center of spaceflight.

To enter a market already dominated by SpaceX, Rocket Lab opted for a smaller, more agile rocket system it calls the Electron. It has a smaller payload capacity than SpaceX’s Falcon 9, but that can be an advantage for customers with smaller budgets and different needs.

For example, the Electron carries small satellites into space, aids in research for the Department of Defense, and conducts test flights for orbital pharmaceutical manufacturing (yes, that’s a real thing).

Unlike other space startups that have tried to copy SpaceX, Rocket Lab has successfully and consistently launched payloads for commercial customers. He just reached 50 pitches with minimal hiccups, making him the fastest to reach 50 pitches in history.

Along with its space systems segment that develops satellites, orbital vehicles and solar panels, the Electron’s increased launch frequency helped drive strong revenue growth.

Over the past 12 months, Rocket Lab generated $327 million in revenue. This has increased by over 500% in just three years. But what will drive the next phase of growth to 2030? The company believes it already has the answer.

The growth must come from the neutron

The Electron increases its launch frequency, but given its smaller payload capacity, the revenue it can generate per flight is much lower than other missiles. So Rocket Lab is using its cash balance and the revenue from the Electron flights to fund the Neutron, a medium-sized rocket with more than 40 times the payload capacity of the Electron.

The Neutron is still in development, but appears to be making good progress toward its first flight. Recently, the company did the first test of Neutron’s engine, a major milestone.

If the new missile begins consistent commercial launches in the next few years, it can lead to a huge shift in revenue growth. With Electron alone, Rocket Lab generates over $300 million in annual revenue. Add the neutron and it can grow into billions in annual sales by 2030.

RKLB data on operating income (TTM) by YCharts; TTM = last 12 months.

Is the stock a buy?

The business is currently losing $173 million in operating income each year, which is contributing to the decline in the stock price. But many of these losses come from the development of the Neutron rocket, which requires a lot of upfront costs.

With its current losses, Rocket Lab stock isn’t worth much, and if it never reaches profitability, the stock will continue to fall. It all depends on how the Neutron unfolds. This could lead to billions in revenue, positive earnings and cash generation by 2030. At a market cap of $2.5 billion right now, the stock would likely be much larger by the end of this decade. For that reason, it looks like a buy for investors looking to bet on the space economy.

Just don’t make it your entire portfolio. Rocket Lab could have many advantages, but also disadvantages. A small position that can become a larger one over time if the company executes its growth plan is a solid approach.