Space stocks, after their meteoric rise in 2020, have since come back down to earth, with many companies falling from their previous peaks. In 2020, as a group, space stocks achieved a 64% return, but 2022 saw a significant downturn with a 12% loss, albeit still outperforming the S&P 500. While the outcome for 2023 remains undecided, space stocks are likely to end the year relatively flat.
However, space remains an attractive long-term investment avenue for those who can sidestep exaggerated excitement and unrealistic expectations. According to Barron’s, the space industry is on track to grow into a $1 trillion market, with some even more optimistic predictions estimating that operational space activities, including missions between Earth and the moon, could soar to $10 trillion by 2050.
Despite the variability in financial projections, space stocks hold a promising outlook. Three specific space stocks rise above the rest, showcasing strong long-term potential that is firmly rooted in present-day realities and exemplifying the space industry’s best prospects.
Rocket Lab USA (RKLB)
Rocket Lab USA (NASDAQ:RKLB) recently diluted its stock, sparking concern among retail investors. However, this short-term dip in share price should not detract from the space stock’s high-risk, high-reward long-term potential. Last year, Rocket Lab set a record with its number of launches and secured a $515 million contract to construct and service 18 space vehicles for the U.S. government.
Despite annual per-share losses of $0.38, which fell below analyst expectations, Rocket Lab’s strong performance in 2023 shines through in its end-of-year report. It’s important to note that while Rocket Lab is beyond the pre-revenue stage, it remains a young, expanding company. This growth phase involves trading present losses for the prospect of a tenfold return in the future.
This tenfold potential becomes clear when looking at Rocket Lab’s backlog or the count of customer orders. The company’s backlog more than doubled in 2023, reaching $1.04 billion, up from $582.4 million in 2022. While converting order sheets into profits is not immediate, the backlog signals robust future cash flows. Rocket Lab anticipates recognizing just under half of its total backlog as revenue within the next 12 months, potentially quickly making up for any short-term effects of stock dilution.
Lockheed Martin (LMT)
Lockheed Martin (NYSE:LMT), an aerospace and defense powerhouse, is just as competitive within the wider space sector. Its extensive defense portfolio effectively insulates it against the volatility seen in the space sector, a benefit to space age investors staking cash on more speculative investments. This capability allows Lockheed Martin to maintain stability while also seizing aerospace growth opportunities.
Investors seeking value and income will find Lockheed Martin particularly appealing. For the past 21 years, the company has steadily increased its dividend distributions, signaling its potential to reach dividend aristocrat status. Despite a current yield just under 3%, its payout ratio of 44% indicates a solid cash reserve, supporting continued expansion into space and providing investors with meaningful cash flow.
Lockheed Martin’s operations, which span a variety of sectors, include a space segment that, while not the largest part of its business, is on a growth trajectory. Recent financial reports reveal that space operations account for about 20% of total company revenue. The company is actively growing its space technology capabilities, demonstrated by securing significant contracts, such as a $1.5 billion satellite production agreement with Northrop Grumman (NYSE:NOC) and an $890 million contract for missile-tracking satellites, underscoring its expanding footprint in the space industry. Don’t miss out on this or the other space stocks to buy.
Planet Labs PBC (PL)
Space-based satellite imagery is becoming increasingly vital for defense, agriculture, and infrastructure sectors. Planet Labs PBC (NYSE:PL) stands out as one of the select space stocks focusing exclusively on capturing these opportunities. Recently, Planet Labs secured a sizable contract with the U.S. Navy to assist with maritime monitoring across the Pacific Ocean.
While operational and beyond the pre-revenue stage, Planet Labs’ financial health is not ideal, yet it is significantly better than many other questionable space stocks. The company’s third-quarter losses of $0.13 per share exceeded analyst expectations, and notably, Planet Labs operates without debt, holding $713.5 million in total assets and $387 million in current assets. This results in a current ratio between 2.92 and 4.92, depending on the accounting treatment of unearned revenue.
A critical concern for Planet Labs is its current rate of cash burn, which approaches $90 million in free cash flow. Should this burn rate persist, Planet Labs may need to seek additional funding through equity sales or debt financing. Given the current environment of high interest rates, opting for equity issuance or convertible debt could become the most viable path. You can see why this is one of the top space stocks to buy.
On the date of publication, Jeremy Flint held no positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Jeremy Flint, an MBA graduate and skilled finance writer, excels in content strategy for wealth managers and investment funds. Passionate about simplifying complex market concepts, he focuses on fixed-income investing, alternative investments, economic analysis, and the oil, gas, and utilities sectors. Jeremy’s work can also be found at www.jeremyflint.work.