Rocket Lab’s stock price — and risk rating — is rising.
Rocket Lab (RKLB 5.74%) stock scored a fourth straight day of gains on Tuesday, rising another 8.2% through 10 a.m. ET, bringing this space stock’s gains to 27% over the past week.
What’s driving Rocket Lab stock higher? As I noted yesterday, the biggest catalyst is probably the company’s announcement that, over the weekend, Rocket Lab successfully conducted two rocket launches in less than 24 hours’ time — and from two launch sites on opposite sides of the globe. But it seems there’s a second catalyst that’s also driving Rocket Lab stock higher: U.S. government subsidies.
Uncle Sam loves Rocket Lab
Soon after announcing its launch successes yesterday, Rocket Lab put out a separate press release, announcing it had “finalized” a $23.9 million award from the U.S. Department of Commerce. This money will be used “to increase its compound semiconductor manufacturing capability and capacity at the Company’s Albuquerque, New Mexico facility,” where Rocket Lab produces “space-grade solar cells” and other semiconductor products.
There’s good news and bad news about this.
The good news is that Rocket Lab is actually getting closer to $50 million in subsidies — not $23.9 million — because the state of New Mexico is also awarding Rocket Lab money ($25.5 million) to expand its solar cell facilities. The bad news is that neither of these grants is actually news. As Rocket Lab itself pointed out, announcements of both these awards first came out five months ago, in June. This week’s announcement just confirmed the finalization of the federal grant.
Is Rocket Lab stock still a buy?
Put another way, investors may be treating Rocket Lab’s subsidies as new news, when they’re actually old news and were already baked into the stock’s price. In that case, at least some of this week’s run-up in share price may not be justified.
As Rocket Lab stock soars past a mind-boggling 32.5 times trailing sales and remains unprofitable (at least for now), the stock’s riskiness is rising. It may be time for cautious investors to start taking profits.
