Rocket Lab Corporation (NASDAQ:RKLB) Stocks Shoot Up 29% But Its P/S Still Looks Reasonable

Rocket Lab Corporation (NASDAQ:RKLB) shares have continued their recent momentum with a 29% gain in the last month alone. The last 30 days were the cherry on top of the stock's 592% gain in the last year, which is nothing short of spectacular.

Since its price has surged higher, when almost half of the companies in the United States' Aerospace & Defense industry have price-to-sales ratios (or "P/S") below 3.1x, you may consider Rocket Lab as a stock not worth researching with its 32.5x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

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View our latest analysis for Rocket Lab

How Rocket Lab Has Been Performing

Recent times have been advantageous for Rocket Lab as its revenues have been rising faster than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Keen to find out how analysts think Rocket Lab's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Rocket Lab's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as Rocket Lab's is when the company's growth is on track to outshine the industry decidedly.

Retrospectively, the last year delivered an exceptional 65% gain to the company's top line. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 42% per year over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 7.9% per annum, which is noticeably less attractive.

With this in mind, it's not hard to understand why Rocket Lab's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

Shares in Rocket Lab have seen a strong upwards swing lately, which has really helped boost its P/S figure. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Our look into Rocket Lab shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Rocket Lab you should know about.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.