Rocket Lab: The Space Stock to Watch This Earnings

Rocket Lab (RKLB) has been on a tear since its public market debut in August 2021. The company, which went public via a SPAC merger, started trading at $11.58 per share. Today, it trades around $64, representing a gain of over 450% in just five years. This impressive run has caught the attention of investors looking for the next big space play.

Rocket Lab is best known for its Electron rockets, which have successfully launched 94 times, deploying over 265 satellites for clients like NASA, the U.S. Space Force, and the Swedish National Space Agency. But launches are only part of the story. More than 70% of Rocket Lab's revenue comes from its space systems segment, which builds satellite components, satellite buses, and solar panels for a wide range of customers.

The company is also expanding through strategic acquisitions. It's in the process of acquiring Iridium (IRDM), a satellite communications company, in an $8 billion deal expected to close next year. This acquisition is expected to be 'significantly accretive' to Rocket Lab's cash flow and profitability, further diversifying its revenue streams.

Looking ahead, analysts project Rocket Lab's revenue to grow at a compound annual growth rate (CAGR) of 43% from 2025 to 2028, reaching $1.78 billion. They also expect the company to turn adjusted EBITDA positive in 2027 and more than double that to $272 million in 2028. This growth is driven by increasing demand for satellite launches and space systems.

With an enterprise value of $12.7 billion, Rocket Lab trades at 27 times next year's sales, which is not cheap. However, for investors seeking a more focused space play compared to SpaceX, which is also involved in AI, Rocket Lab offers a compelling opportunity. The company's next earnings report, expected in early November, could be a catalyst for further gains.

Rocket Lab's stock performance is a testament to its growth potential, but the real question is whether it can sustain this momentum. The upcoming earnings report will be crucial in determining if the company can meet or exceed the high expectations already priced into the stock. If Rocket Lab delivers strong revenue growth and provides positive guidance, the stock could continue its upward trajectory.

The Iridium acquisition is a significant strategic move that could reshape Rocket Lab's business. By integrating Iridium's satellite network, Rocket Lab will expand its space systems segment and gain a foothold in the critical communications market. This diversification reduces reliance on launch services, which are inherently risky and lumpy. The deal is expected to close next year, and investors will be watching for updates on regulatory approvals and integration plans.

Rocket Lab's competitive positioning is also worth noting. While SpaceX dominates the heavy-lift launch market, Rocket Lab focuses on smaller payloads and has carved out a niche in suborbital hypersonic testing with its HASTE rockets. This complementary approach means Rocket Lab can grow alongside SpaceX without direct competition, appealing to investors who want exposure to the space sector without the risks associated with SpaceX's broader ventures.

However, the stock's valuation is a double-edged sword. At 27 times forward sales, Rocket Lab is priced for perfection. Any disappointment in earnings, such as a slowdown in launch cadence or delays in the Iridium deal, could lead to a sharp sell-off. Investors need to weigh the growth potential against the risk of overvaluation.

For those considering an investment, the earnings report will provide critical data points: revenue growth, launch numbers, space systems performance, and any updates on the Iridium acquisition. A strong report could justify the premium valuation, while a weak one might signal that the stock has run too far, too fast.