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Why Rocket Lab Stock Launched Higher in November

By Lou Whiteman – Dec 3, 2021 at 11:21AM

Key Points

  • Rocket Lab has only been public for a few months, and its stock has been volatile during that time.
  • The company in November made progress in diversifying its business, and delivered revenue that came in ahead of expectations.
  • Rocket Lab is richly valued, but for long-term investors there is great potential here.

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A solid quarter helps support investor optimism about this rocket company.

What happened

Rocket Lab USA (RKLB -0.25%) has taken investors on a wild ride since joining public markets in August via a merger with a special purpose acquisition company (SPAC). November saw the stock gain altitude, up 12.9% for the month according to data provided by S&P Global Market Intelligence.

So what

Rocket Lab is one of a number of space starlets that have gone public in recent years, largely through SPACs. It has mostly been space tourism stocks like Virgin Galactic Holdings that have captured the imagination and gotten most of the attention, but Rocket Lab could end up being the better business.

A rocket launches into orbit.

Image source: Getty Images.

Rocket Lab, as the name implies, is focused on rockets, specifically the small satellite launch market. Although the space sector is beginning to look crowded thanks to the rush of newcomers into the market, the small launch market is perhaps one of the largest subsectors and one of the fastest growing areas.

More broadly, Rocket Lab has a plan to round out its offering to include satellite manufacturing, launch support, and services, trying to create a "one-stop shop" that it hopes will help it to take market share. The company's shares got a boost in mid-November soon after Rocket Lab announced plans to acquire Planetary Systems, which should complement its spacecraft systems business.

Rocket Lab's mid-month quarterly earnings report helped reassure investors the company is heading in the right direction. Revenue of $5.3 million came in ahead of expectations, and the backlog of future business increased from $141 million at the end of the second quarter to $183 million as of Sept. 30.

Now what

Rocket Lab shares have given up November's gains in the early days of December, trading down 12% in the first few days of the month. If that holds, it will continue a pattern for the stock. Rocket Lab shares were up in September, but down in October.

There have been incremental data points along the way that could help explain these moves, but by and large it appears investors are still figuring out how to value Rocket Lab. The potential is clear, but this is also a young company with less than $4 million in sales in its most recent quarter that is valued by the market at more than $6 billion.

For long-term holders who can stomach some turbulence, there is a lot to like about Rocket Lab and, although risky, there is a place for this stock in a well-diversified portfolio. But be warned the turbulence is unlikely to fade anytime soon, and it could be a while before we know whether Rocket Lab the company is able to reach orbit.

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.

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