The Race for Space: 3 Small Cap Space Stocks to Buy

Key Points

• Several small-cap stocks are vying for dominance in the aerospace and defense industry, particularly in the rapidly growing space race.
• Morgan Stanley projects the space industry's value to reach $1 trillion by 2040, offering immense growth potential despite significant risks.
• Three standout small-cap stocks in the aerospace sector are Rocket Lab, Intuitive Machines, and Redwire Corporation.

An exciting theme is emerging within the industrial sector as several small-cap stocks battle for dominance in the aerospace and defense industry, particularly in the space race. Space investors today have many choices, ranging from established defense titans to narrowly focused start-ups. 

Morgan Stanley forecasts the space industry could reach $1 trillion by 2040, presenting immense growth potential. However, the path to success is filled with risks, as even the most advanced players face setbacks while bringing new, innovative products online.

While the number of customers in this space remains limited and government influence is still a significant factor, three small-cap aerospace and defense stocks stand out as they expand their operations in space. These stocks could be a good choice for investors seeking high growth and willing to embrace elevated risk.

Rocket Lab USA Inc. NASDAQ: RKLB

Rocket Lab has become one of the top-performing space stocks of 2024, recently reaching a 52-week high of $8.98 per share before pulling back slightly to $10.69. Over the previous year, the stock has rocketed over 121% and is up over 75% YTD. Rocket Lab's strength lies in its diversified revenue streams, with around 70% of its income coming from its launch and space services businesses. 

The company continues to progress with its Electron rocket, which is designed to launch small satellites. Having successfully launched its 53rd Electron rocket in September, Rocket Lab estimates that demand for small satellite launches will soar, expecting over 10,000 satellites to require launching by 2030.

However, profitability still needs to be discovered, which complicates valuation. The bullish case hinges on Rocket Lab’s resilience and the upcoming Neutron rocket, designed to handle larger payloads and open new revenue streams. Despite the challenges, Rocket Lab’s solid track record suggests it can navigate the industry's obstacles while pursuing long-term growth.

Intuitive Machines, Inc. NASDAQ: LUNR

Intuitive Machines has had an outstanding year, with its stock surging 187% YTD. The company focuses on space systems and infrastructure, specializing in enabling scientific exploration and the sustainable utilization of lunar resources to support human presence on the moon.

September was a standout month for LUNR, as its share price jumped from $6 to nearly $10 after securing a significant contract with NASA. On September 17, NASA awarded Intuitive Machines a Near Space Network contract, potentially worth up to $4.82 billion over the next decade. This deal includes deploying lunar relay satellites and providing vital communication and navigation services for NASA's Artemis campaign.

Looking ahead, the company’s IM-2 mission, set for January 2025, will deliver an ice drill and mass spectrometer to study lunar ice. Although analysts forecast $371 million in revenue next year, they don’t expect profitability until at least 2026, making LUNR a speculative investment suitable for those with a high-risk tolerance.

Redwire Corporation NYSE: RDW

With a market cap of just $444 million and modest daily trading volume, Redwire is relatively under-the-radar among space stocks. However, its performance in 2024 has caught the market's attention, with the stock up 138% YTD. Redwire provides essential space infrastructure and solutions to both government and commercial clients worldwide, making it a key player in the space economy.

Most notably, Redwire announced on October 2 that it’s providing the critical onboard computer system for the European Space Agency’s (ESA) Hera mission, Europe’s first flagship planetary defense mission. Hera works with NASA’s DART mission, which successfully impacted the asteroid system Didymos in 2022, using Redwire’s power and navigation tech.

Despite weaker-than-expected earnings in Q2 2024, analysts remain bullish on Redwire due to its revenue growth and technological advancements. The company reported ($0.27) per share, missing the consensus estimate by $0.15, but exceeded revenue expectations with $78.11 million. With a consensus Buy rating and a price target of $7.65, analysts see nearly 13% potential upside for the stock.