Better Space Stock: Rocket Lab vs. Redwire
Key Points
NASA wants to build a moon base, and both Rocket Lab and Redwire may have roles in that.
Rocket Lab's Neutron rocket could carry cargo to the moon; Redwire could use that cargo to build infrastructure.
Redwire stock is a lot cheaper than Rocket Lab stock.
Rocket Lab (NASDAQ: RKLB) sure lived up to its name this week, rocketing more than 10% on Wednesday after NASA Administrator Jared Isaacman unveiled his new "Ignition" plan to build a base on the moon.
On Tuesday, March 24, NASA announced its plans for launching dozens of uncrewed rockets to put cargo and science experiments on the moon. Artemis-crewed space launches will begin this year, and the launch pace will accelerate to two launches per year shortly thereafter. The price tag for all this is $20 billion.
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As investors digested the details of Tuesday's announcement, they were left with visions of big stock profits dancing in their heads. By Wednesday, the buying frenzy was in full force, with multiple space stocks soaring by double digits.
Just not Redwire Corporation (NYSE: RDW). Redwire stock went up only 1%.
Image source: Getty Images.
And I think that's a mistake.
Why buy Rocket Lab?
Don't get me wrong. I agree that the investors who bought up Rocket Lab and a few other space stocks this week may be on the right track. Although Rocket Lab's tiny Electron rockets lack the necessary "oomph" to put appreciable payloads of cargo on the moon today, Rocket Lab's larger Neutron rocket, which should enter service this year, will.
As NASA diversifies its stable of launch providers and seeks companies to help it reach its goal of launching one cargo mission per month (in addition to the two crewed missions per year), I fully expect Rocket Lab to compete for and win NASA contracts to help build the moon base.
Redwire stock could go to the moon
The thing is, at its heart, Ignition is a project to install infrastructure on the moon, capable of supporting long-term occupation of a moon base and keeping astronauts alive on the moon on a "semi-permanent" basis. The key word in all of this is infrastructure, and Redwire is a space infrastructure specialist, providing engineering services, spacecraft docking systems, solar panels to provide power, antennas for communication, and even 3-D printing equipment for manufacturing parts outside Earth's atmosphere.
As NASA builds out its moon base, it seems almost a given that Redwire will play a role.
Rocket Lab versus Redwire: Valuation matters
Admittedly, Redwire wasn't named as a recipient of any contracts under the Ignition program -- yet. (After all, the program's only a few days old.) But then again, neither has Rocket Lab.
What's most important to me as an investor is that the stock market has already priced in a lot of growth for Rocket Lab, whereas this hasn't happened yet for Redwire.
Neither stock is currently profitable, so the market cannot yet assign a price-to-earnings value to either Rocket Lab or Redwire. We can value them on sales, however, and at nearly 60 times trailing sales, Rocket Lab stock simply doesn't have as much upside potential as does Redwire. At 3.3 times trailing sales today, Redwire is easily the cheapest space stock I follow.
I also think it's a superior bet to make on NASA's plan to build an American base on the moon.
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Rich Smith has positions in Rocket Lab. The Motley Fool has positions in and recommends Redwire and Rocket Lab. The Motley Fool has a disclosure policy.
