Rocket Lab USA (NASDAQ:RKLB) announced on Oct. 12 that it had completed its $40-million acquisition of Colorado-based Advanced Solutions Inc. The engineering firm has used its Max Flight Software on 35 successful missions. The addition of this software is another piece in the end-t0-end space company’s quest to dominate the industry. It ought to be good news for owners of RKLB stock.
This article is my first time covering the California-based company. Other than knowing Rocket Lab came to be a public company through a special purpose acquisition company (SPAC) merger with Vector Acquisition Corp. in late August, I don’t know a whole lot about it. However, I do know it’s looking to take a bite out of SpaceX’s $100 billion market capitalization.
If it wants to keep RKLB stock moving higher, the company will need more good news like the Advanced Solutions acquisition. Is its management up to the task? That’s what I’ll examine on my maiden voyage with Rocket Lab stock.
RKLB Stock Doesn’t Have Much of a History
As I said in the intro, RKLB has only traded on the Nasdaq exchange since Aug. 25. In that time, it rocketed up to $21.34 before falling back to $13, where it trades as I write this.
Vector raised $300 million in its September 2020 initial public offering (IPO). It’s helmed by CEO Alex Slusky, whose day job is running Vector Capital, a technology investment firm he founded in 1997. Slusky is no stranger to the sector or related investments.
Also along for the ride are a couple of Vector colleagues and two other technology investors. Slusky and his team have since launched a second SPAC — Vector Acquisition Corporation II (NASDAQ:VAQC) — and have two more filed with the Securities and Exchange Commission but yet to be priced.
Of all the Vector businesses it’s invested in, I’m most familiar with Teletrac, which specializes in fleet tracking and fleet management. Teletrac was eventually acquired by Danaher (NYSE:DHR). Anyway, Vector is a legitimate tech investor that has spent more than $3.5 billion over the years in buyouts, recapitalizations and more.
So, between Vector and Rocket Lab, RKLB stock has been public for a little over a year. That’s not much to go on.
Rocket Lab’s Revenue Potential
InvestorPlace’s David Moadel highlighted Rocket Lab’s financial situation shortly after its merger with Vector closed in late August. Most importantly, thanks to the cash Vector brought to the table along with private investment in public equity (PIPE) financing, it had $777 million in cash on its balance sheet when it started out.
In the first six months of 2021, RKLB had $29.5 million in revenue, 237% higher than in 2020. Further, the company’s backlog more than doubled from $59.9 million as of June 30, 2020 to $141.4 million in the same period of 2021.
So, its business is getting stronger.
When it comes to profits, Rocket Lab doesn’t have any. The first six months of 2021 had an operating loss of $25.4 million, 9.1% higher than a year earlier. However, its operating margin improved from a 264.8% loss to an 86.1% loss year-over-year.
Interestingly, on page 62 of its August 2021 investor presentation, Rocket Lab points out that the cost of a launch is falling. In 2019, it was $8.2 million. In 2020, it was $6.6 million, and in Q1 2021, it was $5.5 million. So in 15 months, it lowered the launch cost by 33%.
With a seemingly healthy understanding of what it will take to profitably run a space company in the future, Rocket Lab’s $1.4 trillion estimated total addressable market is a lucrative target.
The Bottom Line on RKLB Stock
As speculative stocks go, I can’t think of anything more exciting than space-related businesses. after all, it is the future.
However, based on an annual run rate of $59 million and a $6.6 billion market cap, RKLB is trading at 112x revenue. It’s not a ridiculous multiple, but it is high just the same.
If you’ve got “fun funds” available, RKLB seems like a good buy at $13 — but you’ve got to be patient. Rocket Lab’s story could take several years to play out.
On the date of publication, Will Ashworth 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.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.