Please ensure Javascript is enabled for purposes of website accessibility

Why Rocket Lab USA Stock Fell This Week

By Lou Whiteman – Oct 14, 2021 at 4:15PM

Key Points

  • Rocket Lab's volatile start to life as a public company continued this week, trading down and giving back more of its astronomical gains from its first few weeks.
  • The business is healthy and growing, but investors are likely to continue to debate what valuation to assign to the young company.

Motley Fool Issues Rare “All In” Buy Alert

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Investors are still trying to figure out how to value the latest space start-up to hit public markets.

What happened

Shares of Rocket Lab USA (RKLB -5.00%) lost as much as 11.4% midweek, and were down more than 7% as of Thursday afternoon, as investors continue to ponder what to make of this latest new space stock. Rocket Lab shares nearly doubled, but then gave up most of those gains, in just six weeks on public markets, and more volatility is likely ahead.

So what

Rocket Lab went public in late August, and the shares shot up like, well, a rocket in September thanks to a positive update on its financials. The company is the latest in a handful of space start-ups that have joined public markets via a deal with a special purpose acquisition company (SPAC), and so far these stocks have tended to make dramatic moves both up and down as investors try to get a handle on the businesses.

Thunderclouds over Pacific Ocean at sunset, view from satellite.

Image source: Getty Images.

There's a lot of potential in space, but also a lot of risk. Historically, young developing space companies have not been publicly traded, and investors are now trying to weigh the potential against the risk and come up with appropriate valuations.

Rocket Lab's only news of the week was the company's completion of a deal to acquire aerospace engineering company Advanced Solutions. The deal should help Rocket Lab better compete for new launch business by diversifying its product offerings. And priced at just $40 million, it only uses a small portion of the $500 million in cash raised via the SPAC deal.

Now what

These are early days for Rocket Lab, and the company's $6 billion valuation even after the weekly decline is reason for pause. But there is a lot for long-term holders to like about this business.

Rocket Lab has a proven track record, launching more than 100 satellites into orbit for government and corporate customers, and its core small-launch target market looks like one of the most intriguing subsectors of the space market in terms of growth potential. The company is investing in its tech, including bringing to market a slightly larger rocket that should be able to handle a wider variety of missions. And as the Advanced Solutions deal shows, it is committed to diversifying its revenue stream and becoming more of a one-stop shop for launch customers.

Of all the space SPACs that have launched in the last two years, Rocket Lab looks like the best business. The only question is how that potential should be valued today by public markets. That's a debate that is unlikely to be resolved anytime soon.

Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Rocket Lab USA, Inc. Stock Quote
Rocket Lab USA, Inc.
RKLB
$4.18 (-5.00%) $0.22

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
356%
 
S&P 500 Returns
118%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.