Rocket Lab has been on fire lately. In the past six months alone, the company’s stock price has rocketed 192%, reaching $122.15 per share. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.
Following the strength, is RKLB a buy right now? Or is the market overestimating its value? Find out in our full research report, it’s free.
Why Are We Positive on RKLB?
Becoming the first private company in the Southern Hemisphere to reach space, Rocket Lab (NASDAQ:RKLB) offers rockets designed for launching small satellites.
1. Skyrocketing Revenue Shows Strong Momentum
A company’s long-term sales performance is one signal of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, Rocket Lab grew its sales at an incredible 67.2% compounded annual growth rate. Its growth beat the average industrials company and shows its offerings resonate with customers.
2. Operating Margin Rising, Profits Up
Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses — everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.
Rocket Lab’s operating margin rose over the last five years, as its sales growth gave it operating leverage. Although its operating margin for the trailing 12 months was negative 33.2%, we’re confident it can one day reach sustainable profitability.
3. Increasing Free Cash Flow Margin Juices Financials
Free cash flow isn’t a prominently featured metric in company financials and earnings releases, but we think it’s telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
As you can see below, Rocket Lab’s margin expanded by 83.9 percentage points over the last five years. Rocket Lab’s free cash flow margin for the trailing 12 months was negative 46.5%, and continued increases could help it achieve long-term cash profitability.
Final Judgment
These are just a few reasons Rocket Lab is a rock-solid business worth owning, and after the recent surge, the stock trades at $122.15 per share (or a forward price-to-sales ratio of 88.3×). Is now the time to initiate a position? See for yourself in our full research report, it’s free.
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