Rocket Lab USA (NASDAQ:RKLB) is up today after a successful test that proves one of the company’s main underlying investment thesis about reusable rocket engines. Back in May, the company launched one of its own Rutherford engines in a successful test. Following that launch, the company recovered and refurbished the engine. After a few months of work, the company then test-fired the reused rocket engine successfully. Thus, the company demonstrated that the whole concept works and quite well.
The move now advances the notion that Rocket Lab’s Electron vehicle can indeed be the first ever reusable small rocket for orbital functions.
The last 12 months for Rocket Lab shares have been in general decline. After a spike this time last year that sent the company up to briefly pass $20 per share, the company’s value started a long slow slide down, which briefly threatened $4 per share. Recovery followed but still holds at a hair over $5 per share.
Successful tests are certainly welcome news, and that—along with a few other factors—is why I’m bullish on Rocket Lab USA going forward.
Investor Sentiment isn’t Great for RKLB Stock
For a company that basically just proved it can do what it set out to do, Rocket Lab’s investor sentiment isn’t exactly great. Rocket Lab USA currently has a Smart Score of 6 out of 10 on TipRanks. That’s just past the midpoint of the scale, suggesting the company has a slightly better than even chance to outperform the broader market.
Despite this, the company’s insiders don’t seem especially positive. Insider trading at Rocket Lab USA turned negative in recent weeks. Company insiders sold $292,100 in shares over the last three months.
However, this downturn comes after a fairly brisk buying session. While the last three months have been mainly sell-focused—and feature the only two informative transactions in the last six months, both sells—the time before that was pretty heavily buy-focused.
In the last 12 months, there were nine buy transactions and seven sell transactions. Three of those sell transactions were in the last three months.
Rocket Labs is a Telecom Dream Come True
Granted, right now, Rocket Lab USA doesn’t have much of a use case for most people. Rutherford rocket engines will not be on most people’s regular shopping lists or even bought for special occasions. However, there’s a significant market potential here that’s hard to pass by quietly.
For that, we need only look to Elon Musk’s internet service provider (ISP) operation, Starlink. Starlink is a series of small satellites in orbit around the Earth providing internet access. Recently, T-Mobile (NASDAQ:TMUS) joined up with Starlink to offer a way to prevent cell phone dead zones by using satellite connectivity.
Such a move would be helpful in some urban areas, where buildings make transmissions difficult. However, rural areas lacking in infrastructure are the likely big winners. It also represents one of the biggest potential moves for Rocket Lab yet.
All those tiny satellites have to get in orbit somehow. While that’s easy for Starlink, thanks to its roundabout connections to SpaceX, that’s not easy for anybody else.
That’s where Rocket Lab and its reusable Rutherford engines may prove the most worthwhile investment of all. The odds that AT&T (NYSE:T) or Verizon (NYSE:VZ) would turn to Starlink to do what T-Mobile is doing are comparatively slim.
That’s where Amazon (NASDAQ:AMZN) might come into play. Back in June, we heard about Project Kuiper, Amazon’s plan to bring in its own broadband-based satellite system. The company has already purchased as many as 83 launches. It’s demonstrating the potential for other companies to step in and do something similar.
There’s little reason why Verizon and AT&T couldn’t finance their own such launches. That’s particularly true when the issue of reusable rockets comes into play. Rocket Lab can ultimately lead the way in such purchases. Telecom companies would have a low-cost route to the stars to set up their own satellite networks.
It’s hard to envision Verizon and AT&T quietly conceding satellite accessibility to T-Mobile. “No more dead zones anywhere” is a pile of marketing gold sufficient to make King Midas sick.
The derivatives from such a marketing push are dizzying in scope. Just try to keep anxious parents from not buying in on a smartphone plan that ensures their children are always within reach.
However, none of that is possible without low-cost access to space travel. That’s where Rocket Lab may come in and ultimately send its share price on its own rocket ride up. In fact, some analysts—like Cowen—suggest that Rocket Lab could ultimately compete with Northrup Grumman’s (NYSE:NOC) Antares system. The notion that you could buy in on the equivalent of Northrup at around $5 reeks of opportunity.
Is RKLB Stock a Buy or Sell?
Turning to Wall Street, Rocket Lab USA has a Strong Buy consensus rating. That’s based on six Buys and one Hold assigned in the past three months. The average RKLB Stock price target of $11 implies 112.8% upside potential. Analyst price targets range from a low of $5 per share to a high of $15 per share.
Conclusion: RKLB Stock is a Low-Cost Ride to the (Potential) Future
Rocket Lab shares are going for just a hair off their lowest price targets. That’s about as close to a good buy-in point as you can get. With a share of Rocket Lab, you own a piece of a company that could potentially pave the way to the stars for a wide range of telecom firms and other operations. Granted, Rocket Lab hasn’t demonstrated its fullest value yet, but “yet” is the keyword therein. Rocket Lab is already a long way toward working all the kinks out of its systems.
With the systems working properly, Rocket Lab can then turn its full attention to marketing. A proper focus on marketing opens up the best chance to make a profit for investors.
That’s when Rocket Lab shares could truly take off. For around $5, you could be right on the launch pad. That’s why I’m bullish on Rocket Lab USA going forward.
