The key is the flywheel, which is built using all of these skills. Rocket Lab is one of the few places a customer can turn to for reliable launch into orbit, making it much easier for the company to sell its space systems capabilities to these customers. The government also sees it as a promising business, as Rocket Lab recently signed a $24 million incentive agreement under the new CHIPS law to build semiconductors for space systems.

In the long term, investors should keep an eye on two developments for Rocket Lab to advance its vertical integration ambitions. First, the larger Neutron rocket, which will increase its payload per launch and help compete directly with SpaceX. The company has already secured a customer for a neutron launch, which is expected to come to market in 2025.

Second, the company plans to build its own satellite constellation and sell on-orbit software/services, which could help increase the company’s profit potential.

Rocket Lab’s business has a lot going for it, and I applaud the shareholders who bought the stock over a year ago. At the moment you are sitting on fantastic gains. However, that doesn’t make the stock a buy today.

With a market cap of over $12 billion, Rocket Lab trades at a price-to-sales (P/S) ratio of 34, which is more than 10 times the market average. Yes, Rocket Lab has plenty of growth potential, but it’s a capital-intensive, low-margin company that doesn’t deserve to trade at more than 30x revenue.

To illustrate this point, let’s make some forward-looking estimates for Rocket Lab. If the company achieves all of its goals with minimal difficulty in ten years (an optimistic scenario), the company’s revenue could increase to $5 billion from the current $364 million. With a gross profit margin of 26%, it’s safe to assume that once Rocket Lab scales, it can achieve a net profit margin of 10%, which equates to $500 million in profits on $5 billion in revenue.

Consider that a profit of $500 million corresponds to a price-to-earnings (P/E) ratio of 25 compared to the current market cap of $12.34 billion. That’s not much lower than average S&P 500 The P/E ratio is the same as the P/E ratio today, and under the most optimistic assumptions, that would be Rocket Lab’s earnings power in 10 years.

Stay away from Rocket Lab stock right now. The stock price is spiraling out of control.

Have you ever felt like you missed the boat when it came to buying the most successful stocks? Then you’ll want to hear this.

On rare occasions, our expert team of analysts will provide one “Double Down” shaft Recommendation for companies that they think are about to collapse. If you’re worried you’ve already missed your investment opportunity, now is the best time to buy before it’s too late. And the numbers speak for themselves:

• Nvidia: If you had invested $1,000 when we doubled in 2009, You would have $358,460!*

• Apple: If you had invested $1,000 when we doubled in 2008, You would have $44,946!*

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Right now we’re issuing “Double Down” warnings for three incredible companies, and such an opportunity may not happen again in the near future.

See 3 “Double Down” Stocks »

*Stock Advisor returns from November 25, 2024

Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in Nvidia and recommends it. The Motley Fool recommends Rocket Lab USA. The Motley Fool has a disclosure policy.

Up 500% Last Year: Why Investors Are Falling in Love with This High-Growth SpaceX Competitor was originally published by The Motley Fool