Should Investing in Rocket Lab Shares Be Considered Before November 12th?
Should Investing in Rocket Lab Shares Be Considered Before November 12th?
Constructing rockets is a challenge, but reliably sending them into space is an even harder feat. Only one private firm, SpaceX, has successfully accomplished this at scale with its colossal reusable rockets and landing sites. However, the scene became more fascinating when Rocket Lab (RKLB 7.11%) entered the picture. Chasing SpaceX, Rocket Lab excelled in establishing a profitable niche within the space market and became the second private company to regularly and dependably send payloads into orbit.
Unlike SpaceX, Rocket Lab is a publicly-traded company that doesn't require a direct connection to Wall Street. Investors anticipate its third-quarter earnings announcement on Nov. 12, searching for increased revenue, innovative products, and improved profitability across its operations. Would it be sensible to invest in the stock before this third-quarter earnings release?
Leveraging the Apex of Space Flight
Rocket Lab is capitalizing on the flourishing space economy, predicted to hit $1 trillion in annual expenditure within the next decade. Tapping value within the space supply chain begins with sending rockets into the cosmos. As the second private company following SpaceX to dependably send rockets into orbit for commercial clients, Rocket Lab launched its compact Electron rocket.
Rocket Lab generates direct income from launch agreements. Nonetheless, it also generates revenue from supplementary contracts, such as constructing space systems, spacecraft, and satellites for clients like the U.S. government and tech companies like Synspective. Due to the scarcity of competitors in small rocket launches, Rocket Lab boasts a robust backlog for its launch and space systems sectors, amounting to over $1 billion in the previous quarter.
In the long term, Rocket Lab aims to supplement its business with a third pillar: space data and software services. Emulating SpaceX and its Starlink satellite internet service, Rocket Lab envisions offering high-margin software services through its space infrastructure. This phase could potentially dispense the company's current unprofitability, as it presents significant profit potential.
Neutron Advancements and Edge Expansion
Rocket Lab has yet to generate a profit or positive free cash flow, which explains why some investors hesitate to invest in Rocket Lab stock. During the past 12 months, it burned through $149 million in free cash flow. On the balance sheet, it boasts around $500 million in cash. To remain viable, the company needs to attain profitability within the next three years or seek external funding through the capital markets. This situation concerns shareholders.
Yet, the Electron rocket launches are not unprofitable. The majority of Rocket Lab's expenses stem from initial investments to meet its sizeable customer backlog and Neutron rocket development. The Neutron will be a more substantial rocket than the Electron, which will consequently generate more revenue for each payload it sends into orbit. Last quarter, Rocket Lab invested approximately $40 million in research and development, accounting for 38% of its revenue. As the company scales its operations, this proportion of revenue should decrease.
Investment Decision
Investors assessing whether to include Rocket Lab in their portfolios should consider a straightforward question: How risk-averse am I? Rocket Lab stock involves numerous risks, yet it also showcases vast upside potential.
At its current market cap of $5.3 billion, the stock trades beyond 10 times its trailing-12-month sales of $327 million, while its profits remain invisible. There is a high possibility that Rocket Lab will remain unprofitable for the next three to five years or more. This puts pressure on the stock value.
The upside lies in its vast and growing customer backlog of $1 billion and its outlined development scheme for investors. It intends to progress its rocket launching capabilities with the Neutron, expand its space hardware division, and ultimately offer data services to clients. In an economy predicted to spend $1 trillion yearly on space, Rocket Lab has the potential to generate billions in annual revenue with a significant competitive advantage (the only company capable of safely sending rockets into orbit).
If you are prepared to invest in a high-risk stock, you can purchase shares before its upcoming earnings report. Otherwise, it's advised to keep this stock away from your portfolio.
In light of Rocket Lab's third-quarter earnings announcement on Nov. 12, investors are scrutinizing the company's financial performance, hoping to see increased revenue, innovative products, and improved profitability. Investing in Rocket Lab's stock before this release could be a strategic move for those willing to take on higher risks.
Rocket Lab's ambitious plans to diversify its business include strengthening its launch services, expanding its space hardware division, and eventually offering data services to clients. These initiatives, coupled with the booming space economy projected to reach $1 trillion annually within the decade, position Rocket Lab as a potential billion-dollar revenue generator, making it an attractive prospect for investors.