Rocket Lab USA Inc. (NASDAQ: RKLB) is one of the small-cap aerospace stocks to watch in the emerging space industry. Like many small-cap stocks, strong price movement in either direction is common. And investors got a lot of one and a little of the other during the week the company reported its first quarter 2024 earnings.
First the bad news, Rocket Lab is down 27.3% in 2024. That’s wiped away any gains that retail investors had made in the last year.
Now the good news: RKLB stock is stabilizing after its 8% post-earnings drop. That means investors have effectively broken even for the week.
RKLB shareholders are used to this kind of price action. Short interest in the stock is over 20% so there are more than a few traders waiting for any piece of bad news. Short selling can be frustrating. But if you can put your emotion to the side and look at the long-term view, you may see more good than bad ahead for Rocket Lab.
Good News Is Bad News Is Good News
Rocket Lab generates revenue via its launch services and space services divisions. And in the first quarter of 2024, the company posted $92.7 million. That was less than the $95 million that analysts hoped for. But it was 69% higher when compared to the same quarter in 2023.
The revenue came from the launch of four of the company’s Electron rockets and growth in the Space Services business, which accounts for about two-thirds of the company’s revenue.
On the earnings front, the news was also mixed. A loss of nine cents per share was better than the forecasted loss of 11 cents. However, it was only a penny better than the 10-cent loss the company reported in the first quarter of 2023.
Volatility Is the Price of Entry
Even relatively conservative investors may have one or two stocks like RKLB in their portfolio. It’s not about gambling; it’s about speculating on likely outcomes.
In the case of Rocket Lab, the space industry is still in its infancy. At best, it’s still in the “terrible two” stage. That means there’s likely to be plenty of growth ahead. But that growth isn’t going to happen all at once. And to use a metaphor that RKLB stock owners are feeling this week, what goes up can go down really fast.
That’s the price of entry when you invest in an unprofitable company with a $1.98 billion market cap. Obviously investors would prefer that Rocket Lab would be profitable. Most analysts believe that won’t happen before 2026. That means traditional fundamental analysis is imperfect when it comes to the stock.
What you can look for is a solid backlog of work in both the company’s launch business and its services business. However, that backlog dipped by 2.9% in the quarter while operating expenses ticked higher. That could turn around in the next quarter, but it’s something to watch.
And this is a case when you should pay attention to what the analysts say. The Rocket Lab analyst ratings on MarketBeat give the stock a Moderate Buy rating with a $7.39 price target. That would be 80% growth. For context, that would take RKLB stock back to its 52-week high set in July 2023.
