Investors' portfolios are predominantly packed with the stocks of companies that operate on our pale blue dot. But there are other opportunities for investments that are out of this world.

Although many space stocks are highly speculative and may not be within the risk tolerance levels of most investors, Rocket Lab (RKLB -0.22%) offers a compelling investment opportunity. And with the stock's recent decline, investors can scoop up shares on the cheap.

Brought down to Earth

Shares of Rocket Lab haven't fared well in 2022. While the S&P 500 has plunged nearly 17% year to date, Rocket Lab's stock has plummeted about 64%. This underperformance, however, doesn't reflect a catastrophic failing of the company; the stock has simply found itself among waves of investors who have eschewed growth stocks such as Rocket Lab.

Another catalyst for the stock's sell-off has been the bearish sentiment that some analysts have espoused. In January, Bank of America cut its price target to $15 from $20, while Deutsche Bank and Canaccord slashed their price targets to $14 from $18 and to $16 from $28, respectively, in May.

Again, it's important to note that the analysts' pessimism doesn't stem from something ruinous about the company. Oftentimes, analysts have shorter investing horizons than the long-term holding periods that I favor, so like Taylor Swift, I'm shaking these opinions off.

An up-and-comer in the final frontier

Providing launch services as well as satellites and space systems, Rocket Lab meets the demands of both private companies and government organizations that operate in space. It's a nascent field, but Rocket Lab has emerged as a leading name.

After SpaceX, Rocket Lab brandishes itself as the second-most frequently launched U.S. rocket. And since SpaceX isn't a publicly traded company, it's not a consideration for investment.

Addressing Rocket Lab's leading position in the industry, Peter Beck, Rocket Lab's CEO, spoke about Electron, the company's reusable orbital-class small rocket, during the company's Q3 2022 conference call:

In fact, Electron has launched successfully more times this year alone than every other commercial or small-launch vehicle combined across all of their launches to date, and we're still not finished.

Rocket's Lab success in making a name for itself is also illustrated in the company's growing backlog -- a critical sign for a growth company. At the end of the recently completed third quarter, Rocket Lab had a backlog of $521 million, representing a 185% increase over that which it had at the same time last year.

Don't be starstruck with this company shooting for the stars

It's easy to get swept up in the excitement that Rocket Lab offers -- and the famous investors who are sold on the stock's potential -- but it's critical to recognize that picking up shares is not without risk. While the company is making significant progress in securing customers, there's no certainty that it will continue to enjoy the same success. SpaceX is a formidable competitor, and it's possible that it succeeds in reducing costs so significantly that customers lose interest in hitching a ride with Rocket Lab. 

Additionally, there's no guarantee that it will successfully rein in expenses and generate a profit.

RKLB EBITDA (TTM) Chart

RKLB EBITDA (TTM) data by YCharts.

In its short history as a publicly traded company, Rocket Lab has failed to generate earnings before interest, taxes, depreciation, and amortization. And while it's making progress in reducing expenses, management forecasts the company will report an adjusted EBITDA loss of $12 million to $16 million in the fourth quarter of 2022.

Management has refrained from specifying when exactly it expects to book a profit, but investors can look for the company's launch cadence (the frequency of its Electron launches) to increase as an important step. Currently, Rocket Lab is averaging one launch per month, but management believes the company will achieve a gross profit on a GAAP basis once the cadence increases to four launches per quarter.

Rocket Lab should be in your orbit

For growth investors looking to take flight with a space stock, Rocket Lab should be a top consideration. With its industry-leading position, the company -- and its stock -- has the potential to blast higher down the line, but it's critical to recognize the risks. It's unknown whether the company will be able to prove that its space business can be a profitable endeavor, so investors will want to carve out appropriate niches of their portfolios based on their comfort with a speculative investment.