The battered space industry has seen its fair share of crashes back down to Earth lately. Hyped-up names like Virgin Galactic Holdings (NYSE:SPCE) are now trading deep in penny stock territory. But amidst the wreckage, I spy an intriguing turnaround opportunity in Rocket Lab USA (NASDAQ:RKLB). This promising space company looks poised for massive gains within 12 months.
Rocket Lab shares have stabilized around the $5 level after plummeting from late 2021 heights. This presents a compelling entry point today with substantial upside ahead, in my view.
Don’t get me wrong – Rocket Lab has undeniably been swept up in the space sector’s troubles over the past year. The stock touched $18 briefly before plunging back down. However, shares have established a sturdy floor around $4.50 to $5 since mid-2022. That provides an attractive margin of safety to buy into a quality space play before sentiment improves industry-wide.
The Green Financials Are a Ballast for RKLB Stock
Rocket Lab has been executing very well operationally. The company just delivered Q2 revenue growth of 12% year-over-year. It appears sales are on track to climb 26% this year and then accelerate even higher next year — despite lingering industry headwinds. That is why I think Rocket Lab is firing on all cylinders. I expect momentum to continue gaining steam in 2024.
On the flip side, bears will point out Rocket Lab’s steep 9.3x price-to-sales multiple. But naturally, growth stocks warrant premium valuations, and sales could hit $1 billion by 2026. That drops the forward P/S multiple to a very reasonable 2x.
Similarly, EPS is expected to swing firmly positive in 2025 before surging by triple-digit percentages through 2027. The forward P/E ratio comes in around 8x using 2027 projections — hardly expensive given the mammoth growth coming down the pipeline.
In other words, RKLB stock only appears overvalued if you adopt an overly short-term perspective. This is a long-term stock trading at a discount today.
RKLB Stock Is a Bargain Compared to Other Space Stocks
Consider that mighty SpaceX is valued privately at around $150 billion despite massive losses and similar revenue growth. Rocket Lab’s mere $2 billion market cap pales in comparison. Its growth trajectory and execution merit a valuation well above today’s levels. Thus, I see a clear path to $10 per share within 12 months. The company is capitalizing on the booming small satellite market, which research firm Euroconsult projects will nearly quadruple in manufacturing and launch value from $30 billion in 2023 to $111 billion over the next decade. More and more space customers are chipping in here, as launching smaller payloads requires less expensive and more customizable solutions — Rocket Lab’s specialty.
The company is also on the brink of flying 15 successful Electron rocket missions in 2023 — many of them alone. Plus, its New Zealand launch site provides a key strategic advantage, giving access to a range of in-demand orbits. Rocket Lab is also nearing the maiden flight of its larger, reusable Neutron rocket to capture more market share.
On top of its slick launch business, Rocket Lab is now building spacecraft in-house after acquiring satellite component companies in recent years. Being an end-to-end space solutions provider gives it a major edge.
The Bottom Line
In short, leading space player Rocket Lab checks all the right boxes — strong growth, improving margins, cash flow and secular tailwinds. Yet, it trades at a sizable discount to fair value. That mispricing spells multibagger opportunity. Buying under $5 provides a wide margin of safety and about 100% potential upside over 12 months. That may be the most exciting risk-reward trade today among pure-play space stocks.
Could shares still languish a while longer? Sure. But eventual liftoff seems highly likely given Rocket Lab’s operational excellence and industry leadership. I rate the stock a Buy under $5.
On the date of publication, Omor Ibne Ehsan did not hold (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.
