Here’s Why Rocket Lab Stock Is Taking Flight

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Rocket Lab (NASDAQ:RKLB) is a diversified space company. It is the leader in reusable small launch rocket space, and is active in other areas such as building parts and systems for satellites. As the space sector continues to heat up, things such as RKLB stock should benefit.

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In particular, the sector should gain a boost as both Jeff Bezos and Elon Musk continue to pour funds into their space firms. That should give a big tailwind to the other players like Rocket Lab that provide vital services to space companies.

More specifically to Rocket Lab, why have shares been rallying lately? Like many next-generation technology firms, Rocket Lab came public via a special purpose acquisition company (SPAC). Recently, that’s been a bad thing; SPAC stocks have gotten pummeled over the last six months.

Rocket Lab could have stayed on the launchpad given its SPAC roots. Instead shares have been taking flight in recent weeks. The reason is that Rocket Lab isn’t just another conceptual firm with nice prototypes. Rather, Rocket Lab is already a real revenue-generating business that is quickly advancing its business plan.

The Launch Window Opens

The most recent excitement for Rocket Lab has come with the company’s upcoming planned launch. It intends to launch its Electron rocket and then splash it down in the ocean.

This won’t be the first time that Rocket Lab has done an ocean landing of the Electron. However, this time, the company will be tracking the landing with a helicopter to capture detailed data about the mission. In doing so, this should give Rocket Lab the information it will need to try to retrieve future launches in the air rather than in the ocean.

In addition to further validating Rocket Lab’s technology, the mission also has a commercial end. It will situate two earth-observation satellites for BlackSky, which is a global monitoring and geospatial intelligence firm. The upcoming launch window is slated to run for two weeks starting on November 11, meaning that the Electron could be in the sky as early as the next few days.

One rocket launch doesn’t make or break the commercial prospects of a firm like Rocket Lab. This should be a lower-risk, lower-reward launch, than, say, the Virgin Galactic (NYSE:SPCE) one which had Richard Branson on board. Still, these sorts of missions are essential to furthering the technology and showing investors that Rocket Lab is executing on its long-term business plan.

Is Valuation A Big Concern for RKLB Stock?

The leading bearish counterargument around RKLB stock is valuation. The company is generating around $60 million a year in current revenues, which means shares are trading for more than 100x sales. The math is correct, and this is a valid concern. Indeed, our Josh Enomoto argues that Rocket Lab may end up like many other SPACs and sell off sharply due to its high valuation.

That may well happen. However, unlike other SPACs, Rocket Lab has already demonstrated that its technology works to a considerable degree. $60 million of revenues isn’t a ton, but it’s a lot more than zero. Rocket Lab is not in the same league as something like Nikola Motors (NASDAQ:NKLA) or QuantumScape (NYSE:QS) which went public with no revenues or commercial proof of concept.

Rocket Labs is out there actually launching space vehicles and putting satellites into orbit. Yes, the business needs to scale tremendously. But we’re clearly still in the first inning of the global space industry. At this point, investors should be much more concerned about whether Rocket Lab can maintain its technological lead rather than its 2021 revenues. To that end, the company’s upcoming launch window will be a key data point for confirming whether or not the firm is still on track.

RKLB Stock Verdict

There will be many ups and downs for a company like Rocket Lab in coming years. It’s not easy being a pioneer in a totally new industry. Just look at the volatility in a company like Virgin Galactic if you want a sense of what may lie ahead for Rocket Lab. So, this is not a stock for the faint of heart.

For investors willing to stomach some indigestion, however, RKLB could well be worth an investment here. Sure, the valuation is tough to justify based on 2021 numbers. But that’s not really the way I’d look at Rocket Lab here. The company is a leader in launching rockets, and the demand for those services should soar in coming years. As long as the company keeps building better rockets, the demand will show up in due time. The launch later this month could be just the thing to give RKLB stock another boost.

On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.

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