End-to-end space company Rocket Lab USA, Inc. (RKLB) primarily develops and sells small-class launch vehicles and ancillary launch services. Its leading orbital small launch vehicle Electron has delivered 105 satellites through 18 successful missions as of September 30, 2021. Electron is the second most frequently launched rocket by companies in the United States. RKLB is the fourth most frequent satellite launcher globally.

RKLB went public on August 25, 2021, through a reverse merger with blank check company Vector Acquisition. Since then, the stock has gained 17.7% to close yesterday’s trading session at $12.28. The company raised $777 million in gross proceeds through this merger, valuing RKLB at $4.80 billion. Regarding this, RKLB CEO Peter Beck said, “It’s a tremendous amount of capital ... really puts us in a position not only to be aggressive in our organic growth but aggressive on our inorganic growth as well.”

However, RKLB is currently operating in a highly competitive market, with several aeronautical companies gaining prominence. Popular start-ups such as Virgin Galactic Holdings Inc. (SPCE), Jeff Bezos-backed Blue Origin, and Elon Musk’s SpaceX are some of the biggest competitors of RKLB, despite the differentiated operations.

Though RKLB CEO said, “I don’t think it will take long for investors to differentiate between the company that’s consistently delivering and the ones that have aspirations to deliver sometime in the future,” investors have reacted favorably to the recent commercial space tourism. Moreover, despite being one of the most famous rocket launching companies in the U.S., RKLB is yet to generate profits from its operations.

Here’s what could shape RKLB’s performance in the near term:

Declining Financials

RKLB’s revenues declined 50.4% year-over-year to $5.29 million in the fiscal third quarter ended September 30, 2021. Operating loss worsened 307.1% from the same period to $52.30 million. Net loss and loss per share amounted to $87.97 million and $0.39. Adjusted EBITDA loss widened 86.8% from the prior-year quarter to $17.49 million.

Bleak Growth Prospects

RKLB’s management expects the company’s revenue to range between $23 million and $25 million in the fiscal fourth-quarter ending December 31, 2021. However, its GAAP operating expenses are expected to range from $24 million to $26 million, indicating negative operating and net profit margins in the current quarter. Moreover, the company’s adjusted EBITDA loss is expected to range from $9 million to $11 million.

Stretched Valuation

In terms of forward EV/Sales, RKLB is currently trading at 87.65x, 4,411.8% higher than the industry average of 1.94x. Its forward Price/Sales ratio of 93.48 is 5,638.8% higher than the industry average of 1.63.

Moreover, RKLB’s forward Price/Book multiple of 3.27 compares with the industry average of 2.95.

Unfavorable POWR Ratings

RKLB has an overall rating of F, which equates to a Strong Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

The stock has a grade of F for Value and a D for Quality. Its higher-than-industry valuations justify the Value grade. In addition, RKLB’s negative trailing-12-month net income and levered free cash flow margins are in sync with the Quality grade.

Of the 71 stocks in the D-rated Air/Defense Services industry, RKLB is ranked 67.

Beyond what we’ve stated above, we have rated RKLB for Growth, Sentiment, Stability, and Momentum. Get all RKLB ratings here.

Bottom Line

Though RKLB is a leading satellite launcher in the United States, several other space companies have made landmark progress in their operations, gaining investor attention. Moreover, despite the company’s impressive short-term revenue growth potential, its bottom line is expected to remain negative in the near term. Thus, RKLB is best avoided now.

How Rocket Lab USA, Inc. (RKLB) Stack Up Against its Peers?

While RKLB has an F rating in our proprietary rating system, you might want to consider taking a look at its industry peers, Northrop Grumman Corporation (NOC) and Elbit Systems Ltd. (ESLT), which have an A (Strong Buy) rating.

RKLB shares were trading at $12.93 per share on Tuesday afternoon, up $0.65 (+5.29%). Year-to-date, RKLB has gained 27.89%, versus a 26.39% rise in the benchmark S&P 500 index during the same period.

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.

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