When I was growing up, my grandfather used to tell me that he only invests in things he actually understands. For him, it was primarily real estate.
Although I have never followed in his footsteps and know very little about real estate, I have followed his broader advice on investing in topics that I know on a deep level. My own portfolio is primarily concentrated in software and pharmaceutical companies.
However, from time to time I will study companies outside of my usual areas of focus. One company that fell on my radar last year is space supply Rocket Lab USA (NASDAQ: RKLB). Given my investment preferences, you may not be surprised to learn this I remained quite skeptical of Rocket Lab since I started studying the company.
In 2024, Rocket Lab’s stock jumped 361% — absolutely outpacing the returns it showed S&P 500 and Nasdaq Composite. Generally speaking, I tend to caution investors against following stocks with too much momentum. But in the case of Rocket Lab, I’m actually starting to change my tune and create more of a thesis about the company.
Below, I’ll break down what an investment in Rocket Lab might look like and explore why 2025 might be a good time to open a position.
When it comes to investing in the space economy, I bet you’d prefer a position at Elon Musk’s company, SpaceX. SpaceX is still a private company, so investing in the business is not as accessible as buying shares in Rocket Lab.
That said, even if SpaceX were a public company, I’d still prefer a position at Rocket Lab. reason? Value.
Back in December, SpaceX completed a secondary sale in which the company itself and some investor syndicates bought shares from insiders. According to the details of the transaction, the shares were bought for $185 per share – valuing SpaceX at about $350 billion.
Here’s my simple take on investing in SpaceX: If I wanted to buy the company’s stock at today’s prices, I’d get a $350 billion valuation. If I were hoping to double my money, SpaceX would need to increase in value to $700 billion. And if I want to increase my investment 10 times, the company should be worth 3.5 trillion dollars.
Considering that the estimated total addressable market (TAM) for the space economy is expected to reach $1.8 trillion by the middle of the next decade, it doesn’t really make sense for SpaceX to be valued at twice that amount (at least anytime soon).
In contrast, Rocket Lab’s market capitalization currently hovers around $12.4 billion. Admittedly, this is a bit rich based on Rocket Lab’s current sales numbers and lack of profitability.
