Rocket Lab currently trades at $73.84 and has been a dream stock for shareholders. It’s returned 577% since April 2021, blowing past the S&P 500’s 66.4% gain. The company has also beaten the index over the past six months as its stock price is up 10.2% thanks to its solid quarterly results.
Is now still a good time to buy RKLB? Or are investors being too optimistic? Find out in our full research report, it’s free.
Why Does RKLB Stock Spark Debate?
Becoming the first private company in the Southern Hemisphere to reach space, Rocket Lab (NASDAQ: RKLB) offers rockets designed for launching small satellites.
Two Positive Attributes:
1. Skyrocketing Revenue Shows Strong Momentum
A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Luckily, Rocket Lab’s sales grew at an incredible 76.5% compounded annual growth rate over the last five years. Its growth surpassed the average industrials company and shows its offerings resonate with customers.
2. Projected Revenue Growth Is Remarkable
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite, though some deceleration is natural as businesses become larger.
Over the next 12 months, sell-side analysts expect Rocket Lab’s revenue to rise by 41.7%. While this projection is below its 56.9% annualized growth rate for the past two years, it is eye-popping and indicates the market sees success for its products and services.
One Reason to be Careful:
Cash Burn Ignites Concerns
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
Rocket Lab’s demanding reinvestments have drained its resources over the last five years, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 53.8%, meaning it lit $53.85 of cash on fire for every $100 in revenue.
Final Judgment
Rocket Lab’s positive characteristics outweigh the negatives, and with its shares topping the market in recent months, the stock trades at $73.84 per share (or a forward price-to-sales ratio of 48.5×). Is now a good time to buy? See for yourself in our full research report, it’s free.
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