Rocket Lab (RKLB) stock is in focus after the company secured a record US$816 million contract with the Space Development Agency, lifting its backlog to US$1.85b and sharpening attention on upcoming earnings.

Despite the record contract and recent product wins, Rocket Lab’s share price fell 4.48% in the last session and is slightly lower over 90 days. However, its 30 day share price return of 20.28% and very large 1 year total shareholder return of 242.80% suggest momentum has been building over a longer stretch.

If this contract puts the wider space sector on your radar, it could be a moment to scan for other fast growing names via our curated list of 37 AI infrastructure stocks

With Rocket Lab sharing a record US$816 million deal, a US$1.85b backlog and strong recent returns, the key question now is whether the current price still leaves room for further gains or if the market is already pricing in future growth.

Most Popular Narrative: 19.4% Undervalued

Rocket Lab's most followed narrative pegs fair value at $98 per share versus the last close of $78.81, which puts that new Space Development Agency contract into sharper context.

Since my original post, RKLB has continued to expand its space systems business, including through acquisitions and raising more capital. Its Neutron rocket is still largely on schedule, and as expected, no major new players have arrived to take RKLBs #2 spot in space launch.

These estimates produce a current fair value of ~$98 per share. The main determinant of daily stock prices over the next 10 years will be the PE ratio the market ascribes to Rocket Labs. This will fluctuate massively over time as an amplified measure of current investor confidence in the spaceflight business, the space economy, the global economy and global markets in general. Throughout Rocket Lab will continue to innovate and grow. Periods of lower PEs will offer good buying opportunities. Only extremely high PEs represent true overvalued status, given the long term prospects of this company. Read the complete narrative.

Curious what has to happen for that fair value to stack up? The narrative leans on ambitious revenue expansion, higher margins and a valuation multiple usually reserved for market leaders. The exact assumptions are where it gets interesting.

Result: Fair Value of $98 (UNDERVALUED)

However, this depends on Neutron achieving commercial success and Rocket Lab turning its current net loss of US$198.2 million into sustainable profitability.

Another Angle on Valuation

That $98 fair value from the narrative leans on future earnings and a higher P/E in time. However, the current P/B of 26.5x versus 19.6x for peers and 4.1x for the wider US Aerospace & Defense group points to a rich price tag that leaves less room for error. Which story do you trust more?

To see how those valuation gaps stack up against hard numbers and what they might mean for risk, See what the numbers say about this price — find out in our valuation breakdown.

Next Steps

With such strong opinions on both upside and risk, it helps to see the full picture quickly and decide where you stand. To weigh both sides before you commit fresh capital, start with the 1 key reward and 3 important warning signs

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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.