What happened

Shares of Rocket Lab USA (RKLB 1.13%) blasted 10% higher on Thursday after a Wall Street analyst assigned a buy rating to the satellite launch company. Rocket Lab is well-positioned to compete in a key segment of the space market, according to the analyst, giving investors a lot to get excited about.

So what

Rocket Lab is one of a number of space companies to go public in recent quarters via a merger with a special purpose acquisition company (SPAC), and investors have been taken on a wild ride by the company in a short amount of time. The stock is up 54% since its late-August debut, and at one point in early September the stock had nearly doubled.

Illustration of a series of rocket launches.

Image source: Getty Images.

Stifel's Erik Rasmussen sees a lot to like about the company, which specializes in launching small satellites into orbit. That part of the market, Rasmussen wrote, "has exploded" in recent years and Rasmussen thinks Rocket Lab has the cost structure and first-mover advantages to take advantage of that market.

Rasmussen called Rocket Lab's small launcher a "game changer," and has high hopes for a second, larger rocket that Rocket Lab is working on. The analyst initiated coverage with a buy rating, and set a price target of $22 per share.

Now what

Rocket Lab has actually been around since 2006, and the company has a strong track record of nearly two dozen successful launches putting more than 100 satellites in orbit both for commercial and U.S. government customers. It also has a solid book of future business, including deals with NASA.

I've been cautious about the new generation of space start-ups now available for investors to buy in, worried about how quickly the total addressable market will expand and whether any of these companies will have pricing power as competition increases.

But among this generation of new companies, Rocket Lab is a standout in terms of the business it has already built and the technology it has in-house. The company is also attempting to add satellites, component manufacture, and services to its offering, which would open up new revenue opportunities and help diversify its business.

This is still early days and Rocket Lab, despite its $7 billion market capitalization on just $55 million in annualized sales, is still risky and likely volatile. But Rasmussen's optimism is understandable. While best left as a small part of a well-diversified portfolio, there is reason to hope Rocket Lab can reach great heights in the years to come.