Why Rocket Lab Stock Soared in August

Rocket Lab USA (RKLB 5.24%) plans to go to Mars, and investors seem to think the stock could be on its way.

Shares of Rocket Lab climbed 19.7% in August, according to data from S&P Global Market Intelligence, on solid earnings and news of a high-profile mission.

On Mars and beyond!

Rocket Lab is part of a new generation of space companies reshaping the industry and taking share from operators. The company quickly established itself as a leader and is now trying to boldly go where few have gone before.

In August, the company reported strong year-over-year growth in the second quarter and a pipeline of more than $1 billion in future business. Rocket Lab also announced that it has built two spacecraft for the University of California Berkeley Space Science Laboratory and NASA. The mission, which will travel to Mars, is part of a demonstration by Rocket Lab that it can do space missions at about one-tenth the cost of legacy space contractors. If successful, Rocket Lab should see significant demand for its services at these lower prices.

Is Rocket Lab stock a buy?

It’s important to note that Rocket Lab is an early-stage, money-losing company with significant competition not only from major defense contractors, but also from other start-ups. Rocket science is notoriously hard and a lot can go wrong.

That said, Rocket Lab deserves applause for the progress management has made in growing the business. Rocket Lab hopes to be a one-stop shop for government and corporate customers, able to design and manufacture satellites, launch them into space, and then maintain and control them from Earth.

Much of the projected growth in the space industry assumes that companies that previously had no presence in space will eventually see the value in having their own satellites in orbit. This requires less cost and would likely favor Rocket Lab’s approach compared to customers who develop their own experience in-house or deal with a large number of vendors.

So while this stock isn’t a sure thing yet, the company is well on its way to proving its concept. Proving its value to NASA with this Mars mission is part of that process. The company continues to make progress in other areas as well, including the development of its new Neutron rocket that it hopes to launch in 2025 and which could eventually allow it to carry larger payloads into space.

Given the risks involved in the space, investors should remain cautious. But for those with a taste for high-risk, high-reward investments, Rocket Lab is worth considering as part of a well-diversified portfolio.