While Rocket Lab (NASDAQ:RKLB) stock recently rose higher on NASA contract news, that’s hardly the only reason to be interested in RKLB stock.
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Usually growth-oriented companies present a trade-off for investors: There’s the potential for rapidly increasing revenues, but it’s very often counteracted by less than stellar financial fundamentals in other metrics.
In other words, expect income losses even when revenues increase substantially. But the good news is this: Rocket Labs simply bucks that trend. That’s encouraging, especially considering that the company de-SPACed on Aug. 25.
Let’s work backwards from the big picture which indicates Rocket Labs is worth investing in. Then we’ll look at the more granular details which further indicate strength.
RKLB Stock Is More Than a Growth Stock
As I noted, growth stocks are interesting because they usually post strong revenue growth. Even though they also usually post losses, the revenue growth generally keeps them attractive enough that investors rush in.
That generally makes me hesitant to recommend them. But in the case of Rocket Labs there’s much less to worry about. Yes, it posted impressive 1st half revenue growth recently, at 237% on a year-over-year basis. Equally importantly though, Rocket Labs went from a company with a -$5.9 million net margin to one with a $3.9 million net margin.
What that means is that RKLB stock represents the best of both worlds: Growth and fundamental soundness.
If we zoom out to the bigger picture then, it isn’t difficult to see why analysts are positive about the equity. It currently carries 4 ratings, 3 of them are buys, and one of them a hold. The important thing is that the average target price of $22 implies approximately 50% upside from current prices.
And that’s after Rocket Labs spiked on news that it had secured business from NASA on Oct. 7.
Rocket Lab stock shot up by as much as 10% after it announced that it had won a contract with NASA on Oct. 7. Rocket Lab will launch NASA’s Advanced Composite Solar Sail System, also known as ASC3. The launch is scheduled for mid 2022.
And according to Barron’s, the deal points to Rocket Labs competitive strength against industry titans: “The business win shows that Rocket Lab has the cost and capability to compete with the likes of SpaceX and ULA, short for United Launch Alliance, the 50/50 joint venture between Boeing (NYSE:BA) and Lockheed Martin (NYSE:LMT).”
That deal comes on the heels of previous wins earlier in the year. The company launched a U.S. Space Force mission in late July. On top of that, Rocket Labs also had a backlog of $174 million of private and government projects.
Positioned to Grow
As I mentioned, Rocket Labs is the product of a SPAC. That SPAC occurred through Vector Acquisition Corporation and resulted in $777 million of proceeds from a private investment in public equity (PIPE) deal.
That strongly indicates that Rocket Labs will have sufficient capital to fulfill that backlog of business and secure further deals.
Verdict on RKLB Stock
All that said, the company is still a growth company. It posted a $32.547 million net loss in the first half of this year. And the company burned through $36.582 million of cash in order to sustain those operations.
But again, it did receive $777 million from the August PIPE deal. RKLB is still a growth stock gamble, but one that looks stronger than many others in its class.
The fact that Rocket Lab outcompeted the Boeing/Lockheed Martin joint venture in this latest NASA deal speaks volumes. And its current capital levels will keep it in the running to make more headlines moving forward. That’s why it’s worth considering investing in RKLB stock at this time.
On the date of publication, Alex Sirois 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.
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