Should You Buy Rocket Lab USA While It’s Under $10?

In recent decades, a retreat from government-run space projects has opened the door for the private sector to push the limits of what’s possible. Advances in technology have made space exploration more accessible and in line with Morgan Stanleythe space economy has the potential to grow to $1 trillion by 2040.

Many investors would love to own SpaceX, but the $210 billion company has no plans to go public anytime soon. As an alternative, investors may want to consider Rocket Lab USA (RKLB 4.18%)a company that achieved the second highest number of space launches last year behind SpaceX.

Rocket Lab made its publicly traded debut in 2021 and rose to $21 per share. However, the stock remains 67% below its all-time high and is priced at $7 per share today. If you’re bullish on the space economy, Rocket Labs may be one of the stocks you’re interested in. But there are a few things you should know first.

Rocket Lab’s space tracker

Rocket Lab develops and operates orbital rockets and provides launch services for customers seeking to put satellites into orbit. Its flagship vehicle, the Electron, facilitates frequent and cost-effective travel and has flown 42 missions for government and commercial customers since 2017.

Last year, the Electron was the second most used orbital rocket in the United States, behind SpaceX’s Falcon launch vehicles. During the year, Rocket Lab achieved nine successful launches. However, this pales in comparison to SpaceX, which accounted for 98, or about 90%, of all US launches.

Image source: Rocket Lab.

Rocket Lab needs to catch up with SpaceX. One of the most significant differences between the two companies’ launch vehicles is their carrying capacity. Rocket Lab’s Electron vehicle can carry 250 kilograms, while SpaceX’s Falcon can carry 10 times that amount.

To better compete with SpaceX, Rocket Lab is working on its Neutron launch vehicle. This missile should increase its payload capacity to 15,000 kilograms and will better meet the needs of larger civilian and defense payloads. With more shipping capacity, Rocket Lab should be able to increase gross margin and approach positive free cash flow.

The company has been working on the Neutron rocket since 2021. The first launch of that vehicle was expected by this year, but that period has been pushed back to mid-2025 at the earliest. CFO Adam Spice said the company anticipates spending between 250 and 300 million dollars in total for Neutron development.

Keep an eye on Rocket Lab’s finances

Government contracts are a big part of Rocket Lab’s business. Late last year, the US Space Force awarded Rocket Lab a $515 million contract to design, build and operate 18 satellites.

The company won additional contracts this year, including a $32 million one from the US Space Force for a “tactically sensitive space” mission. In this mission, the company will design and build a spacecraft and then launch it on its Electron vehicle with just 24 hours’ notice.

Government contracts provide the company with revenue for the next several years, which can help fund ongoing research and development. It also gives the company credibility and allows it to prove itself, giving it the potential to win bigger contracts down the road.

RKLB Revenue (TTM) data by YCharts.

However, the company continues to be a money-losing operation. In the last 12 months, it had revenue of $327 million, but posted a net loss of $177 million.

Additionally, many analysts don’t see it turning cash flow positive until 2026, assuming it begins regular launches of its Neutron rocket. In the meantime, Rocket Lab will continue to burn cash. It currently has about $500 million in cash and short-term investments.

Is Rocket Lab right for you?

Investing in Rocket Lab today is risky and should only be reserved for investors with a high risk tolerance and a long time horizon.

If you’re skeptical, add it to a watchlist and keep a close eye on Neutron’s release progress. If the company faces further delays to its rocket, it could push back the timeline for positive cash flow forecasts, which is critical when investing in emerging, cash-burning growth stocks.

Maybe you’re bullish on the space sector and want some exposure to this potentially fast-growing market segment. In that case, a prudent approach would be to start a small position in Rocket Labs and only add to it over time as it hits key milestones, including the launch of its Neutron rocket and landing additional government and commercial contracts.