Why Rocket Lab Stock Is Going to the Moon Today

Rocket Lab USA (NASDAQ:RKLB) has secured a U.S. government contract worth up to $515 million, a big boost to the space start-up. Investors are cheering the news, sending shares of Rocket Lab up 20% at the open on Friday.

A big deal for a powerful little company

Rocket Lab is one of several companies racing to benefit from the commercialization of space. The company was formed in 2006 and went public in 2021 via a special purpose acquisition company (SPAC), offering a full package to help government and commercial customers get into space and maintain operations once in orbit.

On Thursday, after markets closed, Rocket Lab said in a securities filing that it has entered into an agreement with a U.S. government to design, manufacture, deliver, and operate 18 space vehicles. Work will begin immediately, with the delivery of the "space vehicles" (presumably satellites) for launch slated for 2027. The deal also includes agreements to operate the satellites through 2030, with an option to operate them through 2033.

The contract has a base value of $489 million, with incentives and options totaling $26 million. By way of comparison, Rocket Lab generated $236 million in revenue over the past 12 months.

Is Rocket Lab a buy after its big government deal?

Rocket Lab is attempting to establish itself as a one-stop-shop for the space industry, one company with the ability to design, build, launch, and maintain satellites for customers. This deal from an unnamed government customer is a massive validation of the company's business plan, and provides predictable revenue for years out.

The contract would more than double Rocket Lab's space systems backlog and is a nice complement to a separate deal the company has to build satellites for Globalstar.

Rocket Lab is valued by the market at nearly $2.5 billion, which means investors are already pricing in a lot of growth. This contract alone will not justify that valuation, but it is an important sign that Rocket Lab is on track to meet its goals.

Space is complicated, as Rocket Lab investors were reminded back in September when one of its rockets blew up after launching. Even as this business matures, there are still a lot of risks. But for investors who can handle volatility and are excited about the opportunities presented by space, Rocket Lab is one of the best options to buy in and go along for the ride.

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Lou Whiteman has positions in Rocket Lab USA. The Motley Fool recommends Rocket Lab USA. The Motley Fool has a disclosure policy.