Investors weren't too impressed with Rocket Lab's (RKLB 0.24%) first-quarter earnings report Monday, selling shares of the space stock down 2% despite Rocket Lab reporting 69% sales growth in Q1 -- and predicting up to 77% growth in Q2!
But one Wall Street analyst firm begs to differ.
On Tuesday, investment bank Citigroup repeated its opinion that Rocket Lab stock is a buy. The banker did nudge its price target down to $5.45. But even this target implies Rocket Lab stock will (what else?) rocket 40% over the next year.
Is Rocket Lab stock a buy?
No stock is perfect, and Citi noted some caveats to its buy recommendation. Rocket Lab missed sales expectations in this week's report. "Several" rockets that Rocket Lab was expecting to launch in 2024 may not actually launch until 2025, the analyst also warned in a note on TheFly.com. But long term, Citi sees Rocket Lab accelerating the pace of its rocket launches, growing its revenue, and on a course to earn profits and generate positive cash flow.
Precisely when Rocket Lab will turn profitable and free-cash-flow-positive remains to be seen. Most analysts think 2026 is the date for all these things to happen as Rocket Lab grows its Electron launch cadence and begins regular launches of its new Neutron medium-lift rocket.
Forecasts have Rocket Lab earning close to $150 million that year, valuing the stock at about 13 times earnings two years out -- which doesn't seem an unreasonable valuation, given the speed at which sales are growing. I'd even go so far as to say that Citi's prediction of a 40% rise in stock price (implying a 19x multiple to 2026 earnings) isn't crazy-expensive.
Granted, Rocket Lab has to earn these earnings to justify the valuation. But with nearly $500 million cash in the bank and a cash burn rate of less $140 million a year, Rocket Lab has at least until 2027 to prove Citi right, and prove it's worth the $5.45 a share Citi says it is worth.
