Space exploration used to be dominated by governments, but private companies have taken the reins in recent years. Space companies present a massive opportunity for investors -- according to a Morgan Stanley study, the sector could be worth $1 trillion by 2040.
However, buying space stocks isn't without risk. These companies are attempting to push the limits of technology while at the same time attempting to figure out how to make their businesses profitable. And amid 2022's volatile market conditions, young companies that have yet to profit have taken the biggest share price hits -- among them, many space industry stocks.
If you're able to handle the risks, though, there are opportunities in the sector that could eventually reward you handsomely. Three intriguing investments you can buy the dip on today are Virgin Galactic (SPCE 5.76%), Rocket Lab USA (RKLB 0.23%), and ARK Space Exploration & Innovation ETF (ARKX -1.23%).
Virgin Galactic: Making space tourism happen
Founded in 2004 by billionaire Richard Branson, Virgin Galactic focuses on space tourism. Last year, Branson broke through the stratosphere for the first time, beating out Jeff Bezos and Blue Origin in the billionaire space race. His brief trip into space was 17 years in the making and put Virgin Galactic on the map, taking space tourism from science fiction to reality.
A seat on a Virgin Galactic costs upwards of $500,000. Through September, it had presold 800 tickets, collecting $104 million in deposits. These deposits are its primary source of revenue at present. It's still a money-losing company with over $350 million in losses this year alone, and its stock is down 65% so far this year. Still, it is in a strong capital position with more than $1.1 billion in cash and marketable securities on its books.
Virgin Galactic is on track to begin providing commercial services in the second quarter of 2023 and could be a solid pick for risk-tolerant investors looking for exposure to the space industry.
Rocket Lab USA makes space exploration more affordable
Rocket Lab builds reusable rockets and provides launch services, spacecraft and launch components, and "on-orbit management solutions." Its goal is to make space more accessible and affordable, and it has mainly focused on launching small satellites.
Electron is its small launch vehicle, and since its first launch in 2017, it has flown 27 missions for government and commercial customers, during which it put a total of 150 spacecraft into orbit. Rocket Lab's primary sources of revenue are long-term contracts with customers that include NASA, the U.S. Space Force, and DARPA. Its revenue for the first three quarters of the year grew by 358% to $159 million in 2022, but it booked an operating loss of $98 million during that period.
While management hasn't given specifics about when it expects to start booking profits, it has said that it expects to see bottom-line improvements once it increases the frequency of launches. It currently averages one per month, and management expects it can achieve gross profitability if it bumps that up to four launches per quarter.
Rocket Lab's stock price is down 66% this year, but it has the potential to blast higher in the coming years. This is another solid space stock for growth-minded investors who can patiently withstand volatility as it gets its bearings and works toward profitability.
The ARK Space Exploration & Innovation ETF offers broad exposure to the space
Cathie Wood's investment management firm created the ARK Space Exploration & Innovation ETF in 2021. It focuses on companies engaged in orbital and suborbital space exploration, as well as the companies creating the technology that makes space travel possible.
The fund's single largest holding is Trimble (TRMB 0.59%), which provides hardware and software solutions across various industries, including space, construction, and transportation. Its products integrate real-time positioning technology, including global positioning systems and global navigation satellite systems, which are crucial to space exploration. Trimble accounts for about 9.6% of the ETF's weight.
Other significant holdings include:
- Iridium Communications (IRDM -0.12%), which provides global communications using orbiting satellites;
- Aerovironment (AVAV -10.15%), which designs and manufactures unmanned aerial vehicles;
- Kratos Defense & Security (KTOS -0.05%), which produces unmanned systems and space and satellite communications.
Since its formation in 2021, the fund has lost about 36% of its value, but it's another way investors can get broad exposure to companies pushing the frontier of space travel and exploration.