Rocket Lab trading under $5, will it ever rocket higher?

Key Points

• Rocket Lab is trading below $5 a share after an anomaly delayed the 41st launch of its Electron small-scale launch vehicle. 
• The company is expected to launch its Neutron reusable unibody rocket sometime in 2024; this is a key part of the company's path to profitability. 
• The risk in Rocket Lab may have more to do with macroeconomics but will still require patience from investors.  

The space industry is expected to grow from around $385 billion in 2022 to between $1 trillion and $3 trillion by 2040. Not surprisingly, many investors are looking for opportunities to get involved in this fast-growing sector. Rocket Lab USA Inc. NASDAQ: RKLB is a small, publicly-traded company among aerospace stocks. The company services the space and defense industries. The company has two primary business units: Launch Services and Space Systems.  

The company went public late in 2020. Like many companies at that time, Rocket went public as part of a special purpose acquisition company (SPAC). In its first year as a public company, RKLB stock jumped over 60%. However, like many of these SPAC stocks, it's been a rough road since then. In the last two years, the stock is down 71% and is now trading at just $4.56. 

Is Rocket Lab worthy of penny stock status, or is this a buying opportunity for investors? Here are some factors for you to consider. 

Revenue is coming through the door 

Rocket Lab is not profitable, but it is generating revenue. The company generated $68 billion in its most recent quarter, a 9% year-over-year (YOY) increase. About two-thirds of Rocket Lab's revenue comes from its Space Systems unit. This includes full-scale satellite systems, most of which Rocket Lab manufactures for other companies.  

The remaining portion of the company's revenue comes from its Launch Services unit. This includes the company's Electron small-scale launch vehicle. In 2023, Rocket completed its 40th successful launch and is gearing up for the 41st launch, with the mission name "The Moon God Awakens," sometime in December 2023.  

If you've followed Rocket Lab, you know that this launch was supposed to occur in September but was delayed due to an anomaly that caused the launch to be scrapped. The company detailed the circumstances around the anomaly in its Investor Presentation with its quarterly earnings.  

The bigger news that could move the stock in 2024 is the planned launch of the company's Neutron reusable unibody rocket. It's larger than the Electron and is a key element of the company's investment thesis.  

How to approach RKLB stock 

Rocket Lab is a speculative, long-term investment. The space sector holds enticing promise, but the payoff for many publicly traded companies may still be a few years away. For example, Rocket Lab is not yet profitable and is not likely to be through 2024. 

One reason why investors may want to look at Rocket Lab in the long term is that they built their infrastructure during a time when "lower for longer" interest rates were the norm. In the new higher interest rate environment, this puts the company in an attractive position. 

Like many SPAC companies trying to make inroads in the electric vehicle space, building rockets is a capital-intensive business. In an interview with Opto Sessions, Investor Relations lead, Colin Canfield, remarked about the competitive landscape, "If they (competitors) don't have a vehicle that's operational today, it's going to be very difficult for them to seize on the looming satellite demand." 

The smaller, the better 

Another reason to keep an eye on Rocket Lab is its market capitalization. The company has a market cap of just over $2 billion. Technically, that makes the company a mid-cap stock, but many investors can still agree this is a small-cap company. If you own small-cap stocks, you know it's been a rough two years. That's table stakes for owning small-cap stocks in bear markets. However, historically,  small-cap stocks are the first to come back - and come back strongly - when the market reverses.  

And one more thing, about 54% of RKLB stock is owned by institutional investors. That's unusually high for a stock that trades for less than $5. It also tells you that it may not be as heavy a lift as you might think to move the stock.  

However, if you believe in the promise of Rocket Labs, it's tough to be patient. But that's what will be required. The good news is that you don't have to go all in today. Keep an eye on the company's launch schedule. And if you like what you see, particularly regarding their margins and profitability, this may be the last best chance to get the stock at this price.