Adding a space stock to your portfolio seems like the smart thing to do, particularly in a time where space travel could soon become a reality for the average joe. But, with many companies to choose from, we decided to compare two satellite companies, Rocket Lab (NASDAQ: RKLB) and Maxar Technologies (NYSE: MAXR), to find out which is the better investment right now.
Rocket Labs is an interesting business. As an 'end-to-end' satellite space company, its launches have always been rather small. However, in the past six years, it has deployed over 97 satellites and had 18 launches to space.
The company has recently gone public and according to Peter Beck, the CEO, its merger with Vector Acquisition raised $777 million in gross proceeds. This will allow Rocket Lab to push forward with its plans for its Neutron rocket, which is set for deployment in 2024.
The Neutron rocket will put Rocket Lab in direct competition with SpaceX as it will be a reusable launch vehicle rocket for low earth orbit that is primarily designed for building satellites. The company is also further making a name for itself in the highly competitive space industry as it has won contracts from NASA for both Moon and Mars missions. This, in addition to its recent multi-launch contract with Kineis, an Internet of Things satellite company, gives Rocket Lab a lot in the pipeline over the next few years.
Furthermore, Rocket Lab posted impressive earnings in its first quarter as a public company. Revenue came in at $29.5 million, up 237% year-over-year (YoY), whilst its gross margins went from negative 67% to a positive 13%. Its revenue diversity also increased with 18% of its revenue coming from space systems. The company has plenty of backlog as well -- the number of orders outstanding -- amounting to $141.4 million, up 139% YoY.
However, there are some warning signs for this company that could lead to issues down the line, should growth fall short of expectations. The company is unprofitable and it will remain so for a good few years to come. It is also burning through cash with its Q2 report showing -$380,610 in free cash flow. With the new Delta variant affecting the company's production, investors can expect this to be reflected in its Q3 report.
Maxar Technologies is also a space company that focuses on technology for communication, Earth observation, radar, and satellite-related services and products.
For its most recent quarter, the company posted a net income of $45 million, whilst revenue for the quarter came in at $473 million, up 7.7% YoY. However, its backlog has decreased somewhat from $1.9 billion in December 2020 to $1.5 billion in Q2. This was mainly driven by a decrease in demand from Earth Intelligence and Space Infrastructure segments.
But, this backlog should improve as Maxar Technologies has taken on several new contracts. In August the company announced the signing of two five-year deals, worth $60 million and $26.4 million respectively, with the U.S. National Geospatial-Intelligence Agency (NGA). These deals are set to continue Maxar's involvement in a mission-critical analytic system and the National System for Geospatial-Intelligence Open Mapping Enclave (NOME). Both systems are used by thousands of Department of Defense and Intelligence Community users daily.
The company has also picked up a new order from its long-term client Sirius XM, for a geostationary communications satellite. This, along with its eagerly awaited WorldView Legion satellite launch, gives Maxar Technologies plenty to focus on for the next few years.
However, Maxar Technologies seems to be a volatile stock with many ups and downs since its public market debut in 2004. It is only up 8% in the 12 months, whilst over five years, it is down over 50%. Coupled with the highly competitive nature of the space industry, it seems that Maxar Technologies is not currently impressing investors. But, this could change once its WorldView Legion launch is completed.
Currently, Rocket Lab is the better investment. It has plenty of runway for growth and a good amount of contracts under its belt for the next few years. Maxar Technologies is also not a bad choice, but for investors, it presents a riskier option with not too much growth expected in the near future.
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