Should You Buy Rocket Lab Stock Below $5?

There might not be anything harder than building a private spaceflight company. One company has done so with consistent commercial success -- SpaceX -- with other start-ups such as Blue Origin failing to gain much traction even with close to unlimited funding from their owners. The opportunity in front of these companies is enormous. Analysts expect the space economy to be worth more than $1 trillion within a decade, but few are seemingly up to the task.

However, there is a small-cap stock nipping on the heels of SpaceX: Rocket Lab (NASDAQ: RKLB) . Should you buy the spaceflight stock while the share price is less than $5? Let's take a look.

50 Electron system launches

Investors cheered in June when Rocket Lab's Electron system completed its 50th successful launch, reaching the milestone faster than any other rocket system in history. To be fair to competitors, Electron has a very small payload, but that is why the company has been successful despite SpaceX's dominance. It has become the go-to supplier for companies looking to send small payloads into orbit. For example, it just completed a mission for Varda, which is testing pharmaceutical manufacturing in orbit.

Now, with 50 successful launches, Rocket Lab's reputation as a reliable rocket-launch partner is getting better. Its backlog is now more than $1 billion, and it recently signed a 10-launch contract with Japanese company Synspective. A higher backlog and increasing frequency of launches will mean more revenue growth for Rocket Lab. During the past 12 months, Rocket Lab has generated $283 million in revenue, up from less than $100 million just a few years ago. If Electron can increase its launch frequency, this number will rise during the next few years as well.

Next up: Neutron (and positive cash flow?)

If Rocket Lab only focused on the Electron system, it would likely be generating positive free cash flow (what's left of cash flow after capital expenditures). The system is now launching regularly and reliably. It can also has pricing power for customers as one of the only private launch companies in the world.

However, on a consolidated basis, Rocket Lab is burning more than $100 million in free cash flow a year. Why? One simple reason: developing the Neutron rocket system. This larger rocket has been worked on for years and is taking a ton of Rocket Lab's resources at the moment. It is planning to have more than 40 times the payload capacity of the Electron system, which is around the size of SpaceX's Falcon 9.

Payload is important because it correlates with revenue potential. If the Neutron rocket becomes commercially viable and starts launching consistently for customers, we could see a big change in Rocket Lab's revenue to billions of dollars a year. It would also help the company get closer to generating positive free cash flow. Of course, it is still uncertain whether the rocket will work; it now is in the early testing.

RKLB Free Cash Flow data by YCharts.

Should you buy the stock below $5?

There is a lot of uncertainty with Rocket Lab's Neutron rocket system. However, it looks like investors are taking into account and the risk is reflected in Rocket Lab's stock price.

At less than $5, the company currently has a market cap of $2.3 billion even though it has a path to potentially generating billions in revenue each year. It is one of two companies to successfully break into the commercial rocket launch market, giving it an opening to the $1 trillion space economy. For these reasons, I think investors are smart to take a stab at Rocket Lab stock when the price is so low.

Now, this doesn't mean go all-in on Rocket Lab stock for your portfolio. It is a high-reward stock that also comes with a lot of risk. The business is burning a lot of cash, and it is not clear whether the Neutron rocket will work. Anyone buying the stock should make it a small percent of their portfolio. If the business succeeds, the stock will likely go up a ton. But if it flops, it won't make a huge dent in your retirement account.

Brett Schafer has no position in any of the stocks mentioned. The Motley Fool recommends Rocket Lab USA. The Motley Fool has a disclosure policy .