Shares of Rocket Lab USA (RKLB 8.76%) are a buy over at Citigroup, with the bank seeing blue skies up ahead thanks to new orders and added liquidity. Investors are taking notice, sending shares of Rocket Lab up as much as 10% for the day and up 8% as of noon on Monday.
Citi sees a bright future
Rocket Lab has taken its investors on a turbulent ride in recent months. The company experienced its first launch failure late in 2023, but ended the year on a high note when it announced its biggest contract ever, with the U.S. Space Force.
Earlier this month, the stock plummeted after Rocket Lab telegraphed earnings that would come in below expectations and announced it would be raising about $300 million via new convertible notes that could end up diluting shareholders.
Citi is undeterred. On Monday, the bank reinstated coverage on Rocket Lab with a buy rating and a $6 price target. The bank called the big contract award a sign that the government has taken notice of the company’s value proposition, and said the funding provides the liquidity necessary to fulfill its existing orders while continuing to develop new products.
Is Rocket Lab a buy now?
This is a stock with a lot of promise, and a lot that can go wrong. Rocket Lab is early in its journey to create a one-stop shop for customers, providing satellite design, manufacturing, launches, and monitoring. As we have seen in recent months, the near term can be full of peril. But as Citi reminds us in its upgrade, there is also great potential should the company execute to plan.
The space industry is hard, and Rocket Lab could easily end up a zero if things don’t go to script. But of the handful of high-risk space stocks that have hit public markets in the last few years, it appears to have a better chance than most to be a winner.
Investors with a high risk tolerance and an interest in space might want to make Rocket Lab shares a part of a diversified portfolio.
Citigroup is an advertising partner of The Ascent, a Motley Fool company. Lou Whiteman has positions in Rocket Lab USA. The Motley Fool recommends Rocket Lab USA. The Motley Fool has a disclosure policy.