Is Rocket Lab Stock Headed to the Moon, Ready for Re-entry, or Holding in Orbit?

Key Points

• Rocket Lab shares have soared this year, fueled by the passage of a handful of milestones.

• Another major milestone will likely be met before the end of this year.

• From here, however, investors will want to start comparing this company's valuation and results to the actual opportunity at hand, keeping its bigger competitors in mind.

• These 10 stocks could mint the next wave of millionaires ›

Since its stock price is up more than 1,200% compared to late April 2024, the idea of stepping into a stake in Rocket Lab (NASDAQ: RKLB) at this time could be intimidating. It's a promising company to be sure. But there needs to be room and reason for any stock to keep running for newcomers to dive in.

It's possible this ticker's already reached its maximum altitude based on its best-possible distant future. Or maybe not.

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Here's a closer look.

Image source: Getty Images.

What's Rocket Lab?

On the off-chance you're reading this and aren't familiar with it, just as its name suggests, Rocket Lab is a rocketry company. Its current specialty is the so-called small-lift market. Its reusable Electron rocket can carry small satellites (less than 700 pounds) into low-earth orbit at a cost in the ballpark of $8 million per launch.

To date, Rocket Lab's Electron has made 70 successful flights since the first one back in 2017, including a handful of deployment missions for the U.S. military. As technology has allowed satellites to become smaller and lighter, the relatively small 60-foot rocket has proven adequate for much of the current demand for orbital launches.

That's not all Rocket Lab does, though. In fact, despite its accelerating pace of launches, the company's biggest business is still making much of the technology found within satellites, if not satellites themselves. Case in point: Two satellites that will begin their journey to Mars on a Blue Origin-made rocket were recently delivered to the Kennedy Space Flight Center in Florida.

Perhaps the most exciting chapter of Rocket Lab's story is yet to be written, however, although it will be soon. That's the first launch of its medium-lift rocket capable of carrying 28,000 pounds' worth of payload into low Earth orbit. Although the date isn't etched in stone, this vehicle -- called the Neutron -- is expected to make its inaugural flight before the end of this year, with commercial launches expected beginning next year.

This developmental progress is the chief reason shares of this pre-profit company have performed so well since last year. Investors are simply hoping to beat the rush, so to speak, of bullish interest that's likely to materialize once this next milestone is met.

And that's a problem.

Rocket Labs faces 2 potential stumbling blocks

The growth of the space launch market isn't in question. Now that it's affordable enough to be common, Global Market Insights suggests the worldwide commercial space launch industry is poised to grow at an average annualized pace of 14.6% through 2034, from $8.2 billion now to nearly $32 billion then. That's a fourfold increase likely to be led by the medium-lift sliver of the business that Rocket Lab is now able to serve.

The issue that could -- and likely will -- stand in Rocket Lab stock's way, however, is twofold. First, its current valuation is already sky-high, arguably reflecting the full potential of its future growth. And second, Rocket Lab isn't the only name in the privatized space launch business. It's not even the only player in the increasingly important medium-lift piece of the orbital launch business.

As to the first challenge, Rocket Lab's current market cap is a hefty $22 billion, or roughly two-thirds of the likely size of the entire launch industry 10 years from now. While its revenue is likely to grow enough to pull the company out of the red and into the black in the meantime, the company needs to improve its current top line by a factor of about 20 to have a reasonable shot at justifying its current sales-based valuation. Sure, anything's possible. Not everything is likely or realistic, though. Its satellite and space technology business will help, but may not help enough, as rivals also develop comparable solutions.

As for the second stumbling block, Rocket Lab is facing quite a bit of competition on both of its launch business fronts. Notably, SpaceX has been flying medium-lift rockets since 2010, while Jeff Bezos' Blue Origin has produced a handful of successful medium-lift as well as heavy-lift launches. Northrop Grumman (NYSE: NOC) is also backing Firefly Aerospace's (NASDAQ: FLY) efforts to construct a medium-lift rocket called the Eclipse. Although it's not expected to make its first flight until next year, earlier this year, Firefly did successfully land a probe on the moon -- the first time any commercial lunar lander has done so. To the extent a proven pedigree matters, this company's got a pretty impressive one.

More to the point for investors interested in scooping up a new stake in Rocket Lab, the richly valued company's got a lot of solid competition. It's not going to win all of the industry's future business. It's not even apt to win most of it.

A fun story stock, but not for your serious money

All of this raises the question: What's driven Rocket Lab stock so much higher this year?

Hype, mostly, although admittedly not the hollow kind.

Rocket Lab is a legitimate contender in a space already occupied by bigger and deeper-pocketed players. This scrappy company found a way to break in, leveraging its ingenuity against its rivals' sheer fiscal strength. Ingenuity was enough. It wasn't difficult for this ticker to evolve into the sort of story stock that convinces investors to temporarily look past matters like valuations and market size.

The impending debut launch of Rocket Lab's Neutron is likely to create the sort of buzz that keeps investors focused on the story instead of the numbers, too. That very well could rekindle this stock's rally -- at least for a little while -- which appears to be taking a breath right now. It might even be enough to make Rocket Lab shares a short-term buy.

Just don't dig in too deep, or blindly commit to your position. While a crash isn't imminent, the company's stock is likely to be near or even at its long-term orbital distance from Earth. Analysts think so anyway. Their consensus target of $49 per share is just a tad above the ticker's present price.

Bottom line? It's a fun story to watch unfurl, and the stock itself is also a fun one to speculate with. If you're looking for ideas for your more serious money, though, there are more promising investment prospects out there right now.

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James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Rocket Lab. The Motley Fool has a disclosure policy.