The recent initial public offering (IPO) of space exploration technology, widely recognized as SpaceX, caught the market off-guard and positioned it as a multi-trillion dollar entity. This remarkable entry created a brief liquidity gap, with certain investors opting to sell smaller stakes. In this environment, financing opportunities emerged, showcasing the vast scale of the contemporary space economy.
SpaceX’s valuation is extremely sensitive, demanding flawless operational performance to validate its lofty stock price. One could argue that a more prudent approach might be to consider key infrastructure and defense partnerships that are driving growth in this sector. Here are three reasons to consider investing in Rocket Lab (NASDAQ: RKLB) and Leidos (NYSE: LDOS) in the aftermath of the SpaceX IPO:
Do you remember Nvidia in 2009? A similar unusual signal is surfacing once more. Back then, a “double down” signal emerged for Nvidia, a relatively obscure chipmaker. Today, a company significantly smaller than Nvidia is signaling the same “full conviction” stance.
Valuation arbitrage: buying growth stocks at a discount
While SpaceX has captivated global attention, its astronomical valuation—billions of dollars—requires impeccable execution to warrant its stock price. To double an investment, the market value would need to breach $5 trillion, an exceptionally daunting target.
Rocket Lab presents itself as a promising opportunity, currently valued at a fraction of what it could be. In the first quarter, the firm reported record revenue of $200 million, reflecting a staggering 63% increase year-over-year, and possesses a backlog amounting to $2.2 billion.
This company offers entry into a rapidly expanding field, capable of yielding substantial returns via successful operational execution.
On the other hand, while Leidos commands a higher share price with a modest price-to-earnings ratio of less than 11, its sales growth has been gradual, only climbing 4% year-over-year to reach $4.4 billion in the first quarter. Nevertheless, it maintains an impressive order backlog of $48.4 billion.
Rocket Lab’s Neutron rocket lifts stock prices
So far, SpaceX has largely controlled the medium-to-large commercial launch market with its Falcon 9 rocket. However, various commercial operators, satellite creators, and government entities are in urgent need of reliable alternatives to break this monopoly.
Scheduled for launch later this year, Rocket Lab’s much-anticipated mid-lift reusable rocket, Neutron, aims to change that. It will boost the company’s payload capacity to 13,000 kilograms (28,700 pounds), enabling direct competition in lucrative markets for national security and deep space missions, which are presently dominated by SpaceX. Notably, Rocket Lab already secured five launch contracts prior to the Neutron’s introduction.
