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Is Rocket Lab USA a Millionaire-Maker Stock?

2024.12.06

If you're looking for a millionaire-maker stock, one way to do it is finding a small company pioneering a massive long-term opportunity. Rocket Lab USA (NASDAQ: RKLB) certainly seems to fit the bill as it aims to capture a slice of the rapidly expanding space satellite and rocketry industries. Below, I'll look at the company's pros and cons to decide if it can help make you rich.

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According to McKinsey & Co., the global space economy could be worth $1.8 trillion by 2035 (up from $630 billion in 2023), driven by demand for satellites, launches, navigational services and more.

The industry is currently dominated by a few large companies, like SpaceX, with a 45% share of global satellite launches, as of 2023. However, SpaceX is a private company, and its shares aren't available to retail investors, making smaller players like Rocket Lab USA the only way for the general public to bet on this opportunity.

SpaceX and Rocket Lab have similar business models, primarily focusing on sending cargo and satellites to space. But while SpaceX is known for larger, more sophisticated missions, Rocket Lab's niche trends toward smaller, more specialized payloads.

Rocket Lab's key product, the Electron launch vehicle, is a rocket designed to take small satellites into orbital space where they can provide services to clients on Earth. Like SpaceX, the company has focused on making its rockets reusable, which can reduce costs and help the business model scale. That said, the Electron is only designed to carry payloads of up to 300 kilograms, which is significantly lower than SpaceX's Falcon Heavy, which can transport a whopping 64 metric tons into space.

Over the long term, RocketLab will likely need to develop larger launch vehicles to unlock economies of scale and boost margins. But for now, its business is enjoying healthy operational momentum.

In the fiscal third quarter, revenue jumped 55% year over year to $105 million, while operating losses expanded from $39 million to $52 million. This trend was mainly because of rising research and development costs, essential for developing the rocket program and remaining competitive.

Rocket ship with a dollar bill symbol soaring near the moon. — Image source: Getty Images.

Rocket Lab also reports an impressive backlog of $1.5 billion worth of orders, which suggests demand for its launch services exceeds supply -- a situation that has good implications for growth.

Larger rockets -- like the Rocket Lab Neutron, designed to deliver payloads of 13,000 Kilograms -- could help the company bring down its backlog and expand into more opportunities when it becomes available in 2025. Management has already revealed plans to use this platform to bid on Pentagon contracts, putting it in direct competition with SpaceX.

As an early mover in a disruptive business, Rocket Lab USA has all the ingredients for a millionaire-maker stock. However, investors should also be aware of the uncertainties involved in less established companies.

In the third quarter, Rocket Lab generated an operating loss of around $52 million. This figure could get worse before it gets better because of the huge research and development costs needed to develop rocket propulsion technology. With just $442 million in cash and marketable securities on the company's balance sheet, management may need to turn to outside sources of capital, causing equity dilution, to maintain operations. This move could hurt current investors' claims on future potential earnings.

These challenges will probably cause Rocket Lab's shares to be extremely volatile until its business matures. Over the long term, the stock looks like a clear winner. But rather than count on Rocket Lab making you a millionaire on its own, think about giving it a small enough allocation in your portfolio that its ups and downs over the next few years won't tempt you to scrub the mission.

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Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool recommends Rocket Lab USA. The Motley Fool has a disclosure policy.

Is Rocket Lab USA a Millionaire-Maker Stock? was originally published by The Motley Fool