Why We’re Avoiding Rocket Lab Stock – RKLB

The number of companies going public is becoming overwhelming. We largely cover U.S. initial public offerings, and 30% of them this year (measured by proceeds) have been special purpose acquisition companies (SPACs). But here’s the really interesting metric. If the data provided by StockAnalysis.com is to be believed, there have been 991 IPOs on the US stock market in 2021. We only add that disclaimer because there are so many different numbers floating around. Here’s a chart from Statista showing the number of IPOs over the last 21 years:

Bar chart showing the number of IPOs in the U.S. from 1999 to 2020. 
Credit: Statista
Credit: Statista

If that data is to be believed, that means there have been more IPOs this year than in both years of peak dot-bomb times. We’re spoiled for choice when it comes to new positions for our current portfolio of (checks brokerage account) 34 tech stocks. We’re close to our proposed limit of 36 stocks, so we need to very carefully consider any potential additions. One theme we haven’t placed any chips on is the space industry.

A Dozen Space SPACs

In addition to OG satellite and spacecraft companies, retail investors now have a dozen space stocks to choose from that have all begun trading on the public market in a very short period of time. Using our nifty disruptive tech stock catalog, we can very quickly see how space SPACs have fared so far. (Company names link to latest research.)

Space Travel / TourismVirgin Galactic16.27
RocketsRocket Lab15.72
RocketsAstra Space11.10
SatellitesAST SpaceMobile10.40
Geospatial IntelligencePlanet10.38
Space – GeneralVirgin Orbit10.29
Geospatial IntelligenceSatellogic9.96
Space – GeneralRedwire9.11
Geospatial IntelligenceBlackSky Holdings8.47
Space – GeneralMomentus7.22
Geospatial IntelligenceSpire Global4.57

Since all SPACs are initially priced at $10 a share, you can very quickly see relative performance. Confusing short-term price appreciation with the quality of the underlying business is a rookie move, but these tables are always fun to look at. We can also use this data to stroke the frail egos of our underpaid research team.

Risk-hungry investors always want to hear about stock picks that generate alpha, but equally important are the stocks you don’t invest in that end up hitting the skids. Since we warned about Momentus, their CEO has been indicted by the Feds and shares have fallen -38%. After we dumped Spire because we have a thing for Planet, shares fell -54%. With Planet being the clear leader in earth observation, why would an investor consider companies playing second fiddle?

Of the SPACs in this list, the only space company we might really want a piece of – at least once the reverse merger completes – is Planet. But there are also several companies we’d like to take a closer look at now that the SPAC mergers are done and dusted. One of those is Rocket Lab (RKLB) which is developing a launch service focused on small satellites.

Rocket Lab Stock Rockets

This past March we published a piece titled Rocket Lab Stock Offers Pure-Play on Rockets. Here’s how we left things:

We’re on the sidelines until Rocket Labs files some proper documents with the SEC that better define the risks we’re taking by going long this space stock.

Credit: Nanalyze

Rocket Lab has now filed some proper regulatory documents for us to peruse, so we need to decide if we want to hold the stock or not. The type of business we’re investing in with Rocket Lab is a company that builds rockets, then launches them into space with payloads other people have paid for. The leader in this space right now is SpaceX, and that’s the first point of contention. If space launches are to become a commodity, do we really want to invest in anyone but the leader? The company that pulls ahead will quickly achieve economies of scale which will drive down cost.

On the other hand, many companies and government entities aren’t happy when there’s a sole provider of something important like rocket launches. There is room for more than one player, and we know of at least eight companies developing reusable rockets. Of those, the company that seems closest to SpaceX, at least when it comes to small rocket launches, is Rocket Lab. But where Rocket Lab seems to be running afoul lately is being able to launch rockets that don’t blow up.

Rocket Lab Launches

In order to become a leader in launching payloads to space, you need to be launching lots of rockets. According to Rocket Lab’s website, the company has had 22 total launches with three failures. This chart from Wikipedia shows when these failures took place, the last happening in May 2021.

This chart from Wikipedia shows when these failures took place, the last happening in May 2021. Launch outcomes for Rocket Lab - Credit: Wikipedia
Launch outcomes for Rocket Lab – Credit: Wikipedia

A success rate of 86.4% is rather dismal. While failures can be expected when a company’s launch services are just getting off the ground, they shouldn’t persist. We can see how SpaceX had a higher prevalence of failures early on which corrected over time.

bar chart showing Launch outcomes for SpaceX - Credit: Wikipedia
Launch outcomes for SpaceX – Credit: Wikipedia

Today, SpaceX has a success rate of 97.74% – 132 launches and one rocket that blew up before launch.

An article by TechCrunch last year talks about how SpaceX offers a “rideshare” program which allows small satellite companies to launch things into space without having to purchase an entire payload. The reduction in price was met by remarks from Rocket Lab that “at Rocket Lab smallsat customers are our number one business, and that’s what we do.” The plan is to further build out their offering to better service smallsat customers.

Rocket Lab Acquisitions

Planetary Space Corporation (PSC) is the latest addition to the Space Systems portfolio after recent acquisitions of Advanced Solutions, Inc (ASI) in October 2021, and Sinclair Interplanetary in April 2020. Here’s what each company does.

  • PSC – leading provider of mechanical separation systems and satellite dispensers
  • ASI – flight-proven off-the-shelf spacecraft flight software 
  • Sinclair Interplanetary – manufacturer of satellite hardware

Once PSC’s financials are reflected in Rocket Lab’s financials, we’ll have a better picture of the breakdown between the launch services and space systems segments. Concerns still remain around the gap in technological competence between SpaceX and Rocket Lab. Being able to land a rocket on a small platform in the ocean is an incredible accomplishment while Rocket Lab recovered the booster from its Electron launcher for the third time several weeks ago. From TechCrunch:

Rocket Lab is also a step closer to executing its ultimate reusability plan: using a parachute to slow the velocity of the booster and capturing it midair with a helicopter.

Credit: TechCrunch

Sounds a bit archaic when you consider SpaceX is now working on a fully reusable rocket. Falcon 9, SpaceX’s current partially reusable rocket, sheds its upper stage on each mission, the equivalent of a jet airplane, according to an article by Business Insider which says that would bring the launch price down to 1% of an expendable rocket. That is, if the company doesn’t go bust trying to do it. Just hours ago, media reports have been surfacing that SpaceX is on the “verge of bankruptcy” according to a leaked email from His Holiness Elon Musk. Pundits have been pointing out that he is said to have used similar scare tactics when building Tesla as well. If Starlink is indeed a trillion-dollar opportunity, there’s no way Mr. Musk would let SpaceX sink.

Should You Buy RKLB Stock?

We don’t give financial advice but we can give you tips on how to preserve capital. Any time you’re at an ATM in a shady part of town, always pull cash out discreetly and tuck it into your palm, hiding it from sight. Then, gesture angrily at the machine. Rip that receipt out of there and stare at it for about 10 seconds while dropping f-bombs. Any criminals watching you will think you didn’t get any cash and you’ll be robbed a lot less exiting ATMs. Openly stuffing a wad of cash into your wallet is asking for it.

So, about Rocket Lab stock. One approach could be to invest in Rocket Lab until the opportunity arises to invest in the leader, SpaceX. (If such an opportunity ever arises, that is.) We’re not in a hurry to invest in the particularly risky space domain, so we’d like to wait and see how 2021 pans out and what those acquisitions look like when the financials are rolled up. Using the lower end of Rocket Lab’s 2021 guidance, here’s what our simple calculation ratio works out to be;

  • Market capitalization / annualized revenues
    $6,945 million / $57.76 = 120

That’s an extremely high valuation, and we won’t touch any stock over 40, no matter how great the story is. To put that number into perspective, Rocket Lab shares would need to trade at $5.14 before we’d consider buying them based on 2021 revenues. Smart investors don’t buy into hype, and there appears to be plenty of that right now.

The Rocket Lab SPAC deck estimated $69 million for 2021, but we all know why that didn’t happen. Yes little Johnny, you’re right, it was The Rona. Rocket Lab only expects $14 million in Q4-2022 from the launch services segment with only two launches taking place during that time. Space Systems revenues will be between $9 million to $11 million with ASI acquisition included but not PSC. The Q3-2021 update is put together very well and it’s great to see the communication improve now that they’ve put that SPAC merger behind them.

Conclusion

Shooting giant containers of fuel into the sky and hoping they don’t blow up is a risky business. Entire books have been written about what went wrong at NASA when the Challenger space shuttle blew up. (They make you read these horribly boring stories in bee school.) When you understand how complex this industry is, you’ll quickly wonder how it’s even possible to achieve a near-perfect error rate.

We like that Rocket Lab is diversifying their business but have concerns around their launch cadence, launch vehicle failures, and excessively overvalued shares. We’re avoiding the stock until these metrics improve, especially the last one.

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12 thoughts on “Why We’re Avoiding Rocket Lab Stock – RKLB
    1. And there he goes ladies and gents, off to find his next victim.

      If you want to put on your big boy pants and join the adults for a discussion Mr. Jones, the door is always open.

  1. With all the comparisons to SpaceX why aren’t you doing it properly?

    Rocket lab didn’t start launching commercial satellites until 2018.
    You are counting their initial “It’s a test” flight against them?
    SpaceX had 3 failed Falcon 1 launches prior to 2010 that were also development launches.. why not count those?

    If you look at Rocket Labs actual performance their launch cadence is higher than SpaceX’s initial cadence from the point of first successful orbital launch.

    SpaceX had their first successful orbital launch in September 2008, Rocket lab in 2018.
    In Rocket Labs first 4 years since reaching orbit they have had 21 successful launches with 2 failures. (90.5% success rate)
    In SpaceX’s first 4 years since reaching orbit they had 5 launches with 1 failure (80% success rate)
    It took SpaceX 7 years to hit 21 launches and they also had 1 failure and a partial failure. SpaceX also had back to back failures in 2015 and 2016. Something I hope rocket lab avoids.

    I don’t own any rklb stock (yet) but as a Fan of both SpaceX and Rocket Lab for their individual accomplishments it’s common to see analysis like yours which is… well a little superficial and lacking in objectivity.

    Rocket Lab and SpaceX have had significantly different development and funding paths. In all I like the way Rocket Lab has progressed given their much more lower funding levels. I like that they are public so people have the opportunity to invest but It also complicates their business and could have some negative consequences.

    Rocket Labs development of Neutron may actually be fairly well timed and provide a good cost alternative to Blue Origin “New Glenn”, SpaceX “Falcon 9” and ULA’s “Vulcan”. They will be entering a market with more competition but Blue Origin and ULA operate with “Old Space” snail’s pace so their timelines are anything but written in stone and their costs are likely going to be higher. ULA’s Vulcan is a half hearted design and only partially reusable so they are likely to be much higher cost.

    Astra just had their first successful launch so we’ll see how they do.

    Definitely fun to watch from the sidelines.

    1. Thank you for the comment!

      We’re just reporting the data here taken from Wikipedia which exists there for all to see. Probably make that challenge over there and let them decide what’s appropriate to change. It’s not for us to say.

      We’re looking at today’s cadence.

      Our analysis is based on a methodology we’ve been refining for over a decade. We don’t have a dog in the race here. When you consider we have 2,050 articles published that are not about Rocket Lab, it’s not something we’ve dedicated our lives to. We simply report our findings based on the research performed during a single day. Think of it like an MBA case study.

      Agree on your comment about Rocket Lab being public. Lots to learn here. We’ll be taking another look later on.

      As you said, fun to watch from the sidelines! Thank you for taking the time to articulate the comparison even further.

      But if you had to own one of those two companies TODAY based on what you know now, which would it be?

  2. I don’t have any comments on your business choice, but I am very interested in Rocket Lab because of its Drive systems are more physics and ion driven then the chemical rockets Space X and Blue Origin are following. Basically chemical rockets are required to boost heavy loads from earth while Rocket Labs drives are more suited for interplanetary space travel. By the way NASA is funding Rocket Labs efforts to develop the Neutron. What this really means is Rocket Labs is getting the benefit of Nasa’s research.

    IMO there is another issue shaping up that will impact the economics of space ventures as much if not more than reusability. That is the movement of interplanetary launches to the moon or out in space to eliminate the huge penalty one much pay in rocket thrust to just get out into space. I found Musk’s blowup with his Raptor engine crew very interesting. Apparently Blue Origin is not the only one who is having problems with huge thrust chemical rockets. The sideling of ULA due to failure of Blue Origin to produce a usable rocket is very disturbing. They had by far the best plan for reusing rockets. Once they are into space leave them there. I think Musk has the same idea. I don’t know whether Musk tantrum is for real but it does look like they will need more work to make them usable. Personally I think they and others will have to come up with a space launch engine and drive system for a two stage trip to Mars with lift off from the Moon.

    This is why I am putting more value on Rocket Labs than other people are doing. Their rocket is more economical and effective to move a single sattelite into a particular orbit. Nasa has awarded them part of the Mars mission. Even Blue Origin is back in the game. I surmize the Glenn is ready to fly but just lacks an engine. From what I have read they are more concerned with recovering the rocket and reuability because with the synthetic materials they worried to lose a rocket. IMO they have a bigger problem with building with expensive materials than an unusable engine. But don’t count Jeffery out. He is spending a lot of time on it and I see he now has Nasa on board to help finance his space station.

    1. Thank you for the thoughts Jim. Probably the biggest showstopper right now for RKLB is valuation. Once they’re reasonably valued, it may make sense to take another look. Would also like to see all those acquisitions rolled up in their financials as well.

      Just a comment on interplanetary space travel. Sounds fun and all, but what’s the commercial benefit here? Who will foot the tab for this if it can’t sustain itself? Yes, we’re trying to save the human species for when the sun vaporizes our planet, but where’s the money? 😉

  3. Really broad question. The benefits of interplanetary space travel? IMO Humans as are currently made up will change materially here on earth with the metaverse and other medical changes. I look on sending humans to the moon as more of a learning process than the need to populate other planets. There are two big benefits as I see it with interplanetary travel. The first is knowledge and the second is the chance to establish manufacturing outside our earthly environment using metals from other planets and asteroids and gains in knowledge and expertese by working in space. I personally think there is both life and intelligence in our universe outside of what we have on earth. I just don’t think they are going to speak English. In future time I think we will be introducing live forms to other planets probably starting with bacteria and going from there. Until then I think space will be wide open for investment opportunities including rockets, manufacturing, advancement in robotic processes, and a whole industry devoted to using space to learn more about the unknown both on earth and in outer galaxies. I see Musk has now moved on to (Venus?) as a new place to explore.

    I have no problem in buying these specutlative companies because a few winners will dwarf the losses from the failures.

    1. Some really good thoughts here Jim. The concept of the “metaverse” has been around for ages yet everyone is pretending “Meta” just invented it. Seems like a lot of hype. NVIDIA’s vision of the metaverse as digital twins of everything makes a whole lot more sense than another time-wasting social media network that tries to be the Ministry of Truth. Only Google gets to hold that title.

      From a capitalist perspective, investing in interplanetary travel doesn’t seem overly compelling when the ROI from asteroid mining is decades away. As for other beings, just consider Drake’s equation with conservative parameters and there would be 100,000 other species in our galaxy alone. Or to paraphrase that one guy, it’s as fascinating to think that we’re alone as it is to think we’re not. Either outcome is mind blowing.

      Musk has moved on to Venus? Is there no end to this man’s ambition.

      Ah yes, it’s the old adage – if it’s the next Microsoft all I need is a little. If it’s not, I’m glad I only invested a little.

  4. I have been an aerospace engineer for over 25 years. I am not a stock picker by any means. I look at targeted markets, management and technology when it comes to aerospace start ups. Rocketlab is pursuing a different launch market than SpaceX. SpaceX is going toward a super heavy launch capability at 100 mT to LEO. Few individual customers need that capacity. That means there will be mostly rideshares on StarShip. Cobbling together all those customers that want to go to the same orbit is very difficult, it is not the same as packing a 747 with FedEx boxes. On the other hand, Rocketlab is targeting a 15 mT to LEO market with a fully reusable Neutron that uses very little ground infrastructure. There are many customers that can use that capacity. Then the next technology item is infrastructure, SpaceX launch architecture requires barges, payload fairing catching boats and a bunch of other stuff that makes their operations more expensive. Rocketlab designed all that out with the Neutron. I like Rocketlab for the long haul.

    I also like Relativity Space as well. They have incredible technology that will blow past SpaceX as well. SpaceX is not newspace anymore with players like Relativity Space and Rocketlab in the game. Starship is designed and built using 50 year old approaches to vehicle construction. Design changes and new vehicles take years to produce because of long lead items like tooling, forgings, etc. As long as Relativity Space has strong IP, they will be a company to watch. Unfortunately, I cannot buy Relativity Space stock as it is still a privately held company.

    I think you guys are smart and understand how to value a company financially much better than me, but until you incorporate launch architecture and technology into how you perceive value, I think you may miss out how a rocket company will perform in the long run.

    1. This is excellent feedback Mike, thank you for taking the time to share. We’ve had a lot of people slinging mud about this piece on just about every channel so thank you for articulating your thoughts so well. Very useful.

      How far away do you think Rocket Lab’s reusability is? If we understand correctly, that’s critically important to bring down launch costs. We like Rocket Lab, but we believe it’s overvalued right now and we’d like to see their financials rolled up. Once it achieves a fair valuation, we’ll likely go long. We have a firm objective rule on valuation and we never break it. So far that’s worked out well! What you’ll notice on Twitter are a TON of (excuse our French here) morons that are pumping the stock, an even bigger pack of (excuse our British here) muppets that are “trading” the stock, and a whole slew of people who are blindly aping into the stock and cheerleading it every chance they get. We see this in a number of space stocks, and of course, in quantum computing stocks. This volatility is noise that often leads to inflated or depressed share prices, the latter offering up a good entry point.

      Thank you for the heads up on Relativity Space. We covered them here: (https://nanalyze.com/2020/11/worlds-largest-metal-3d-printing-rockets/). Thankfully they haven’t decided to SPAC it.

      We like Rocket Lab but we’re risk-averse investors so we’re avoiding it until the dust settles. Please continue to share your thoughts as your subject matter expertise puts you in a much better position to understand the value proposition. We learn as much from our subscribers as they learn from us. We’ll revisit Rocket Lab in Q1-Q2 next year or sooner if the share price becomes fairly valued (according to our simple valuation ratio).

  5. Rocketlab is targeting 2024 as the date for their reusability with Neutron. Please see the video “Neutron Rocket | Development Update”

    I don’t disagree with your decision to invest at this time. It is reasonable to expect more value when you buy a stock. I do the same for the investments I rely on for my retirement. However, I do like to support start ups so I invest a modest amount in companies that I think have true innovation that enables more affordable routine access to space.

    Besides reusability the way Rocketlab has integrated their fairing into the first stage and how they push out the payload and upper stage, is unique. Rocketlab as well as Relativity understand that ground support equipment is expensive and slows down the development process. Rocketlab is driving towards near zero GSE for operations, and Relativity is eliminating tooling type GSE in the factory.

    I like companies like Rocketlab and Relativity much more than SpaceX. SpaceX was innovative in the past, but now they mostly tout others idea that have been there for decades. Starship is the economies of scale that was recognized eons ago. The material they are making starship from is a rehash of the hot structure arguments from long ago. Likewise the raptor LOx/CH4 engines are not conceptually new, they are 30+ years old. SpaceX has the advantage of having a single mind that can drive the company, but that works in both directions. Elon can also stifle innovative architectures and ideas at a macroscopic level that could eventually doom them. I have genuine concern about SpaceX’s HLS architecture, it requires too many launches to put too much of a too tall rocket on the Moon. Aerospace is a slow lumbering beast of an industry, I hope that all players find their niche and prosper, but I have more confidence in some than others.

    I will have to see if you have down a review of Redwire, that is another company that I have high hopes for in the long haul.

    1. That’s a really cool video, thank you for sharing. You have got to love this guy.

      A lot can happen in three years and we don’t invest based on future plans. We’re always only looking at the latest revenue numbers. That’s because things change very quickly in the world of technology.

      Supporting startups is fine provided you have the cash needed to invest the 10-20K minimums across 10 or more startups. A VC fund might invest in 100 startups and expect 3-5 to pay off the fund. There’s a reason startups are quite risky – most fail.

      Your approach is well though out and based on your subject matter expertise in the field. We take an industry-agnostic approach to investing so that we don’t have to be experts but can also learn from experts such as yourself 🙂

      We covered Redwire briefly here. https://nanalyze.com/2021/05/disruptive-technology-spacs/ We’ll look to cover them again in 2022.

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