Rocket Lab (RKLB -0.86%) is one of the best performing stocks of the last few years. Trading at a price of just $4 or $5 in early 2024, the stock has now shot up around 10x in value in the last 18 months, surpassing a price of $50. Investors can’t get enough of Rocket Lab and its ambitious plans to become the next SpaceX in the rocket launch and space services market.

Now, the company is taking advantage of this elevated stock price in order to raise funds on the cheap. How? Through what is called an at-the-money (ATM) offering. Here’s what is going on with Rocket Lab today, and what that means for anyone looking to add the stock to their portfolios.

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Raising money, ambitious goals

Earlier in September, Rocket Lab entered into an ATM stock offering for upward of $750 million. Instead of a bulk offering at a fixed price, an ATM stock offering allows a company to raise funds at its choosing by selling new shares of stock at current market prices, which is why it is called “at-the-money.”

This ATM will allow Rocket Lab to raise funds at an elevated current market cap of $24 billion, reducing the impact from share dilution. Raising $750 million at a $24 billion market cap would only dilute shareholders by increasing shares outstanding by 3%. If the same ATM offering was done at a $2.4 billion market cap, that would dilute shareholders by 30%. A huge difference.

Raising funds will give Rocket Lab a more conservative balance sheet as it looks to ambitiously expand its rocket and space systems businesses. Last quarter, Rocket Lab ended with just around $750 million in cash and equivalents on its balance sheet, while it has burned around $200 million in cash over the last twelve months. Doubling its cash pile should give it many years of runway to build out its space flight infrastructure before worrying about generating positive cash flow, all while barely diluting existing shareholders.

This is a smart move by Rocket Lab’s management to take advantage of its soaring stock price.

Defense and commercial opportunities

But what exactly is Rocket Lab’s business? Today, it operates a small rocket called the Electron, which has reliably launched small payloads for customers, including the United States military. Even though these are not nearly as large as SpaceX’s rockets, Rocket Lab is the only other reliable commercial rocket launcher in the United States today. On top of rocket launches, Rocket Lab builds space systems for its launch customers such as satellite, communications, or solar energy systems.

In the future, it hopes to expand to even more parts of the rapidly growing space sector. The company is about to debut a larger Neutron rocket that will compete more directly with the likes of SpaceX. Development of the Neutron has been expensive, but we are nearing the finish line to commercial launches as the first rocket is set to begin live testing later this year. A rocket the size of the Neutron generally can earn $50 million or more in revenue from every launch. Today, Rocket Lab’s revenue is only $500 million, meaning that a scaled-up Neutron could take this business to the next level.

Through its recent acquisitions of both Geost and Mynaric — two space systems companies that work on satellite communications and orbit detection services — Rocket Lab is betting it can be a premier contractor for projects such as the Golden Dome satellite defense system, which has a proposed budget of $175 billion. Like SpaceX, Rocket Lab’s future ambitions lie in building its own constellation of satellites, although it is unclear whether Rocket Lab will compete directly with Starlink internet or offer other orbital services.

RKLB Free Cash Flow data by YCharts

Is Rocket Lab stock a buy?

Long-term investors in Rocket Lab should be beaming. The company keeps progressing on its plans and just shored up its balance sheet so it can keep aggressively pushing to grow and compete with SpaceX.

However, today I do not think the stock is a slam-dunk buy. The company has only $500 million in revenue, a market cap of $24 billion, and further share dilution coming down the line. This is a business executing in all facets of its operations, but price matters when valuing a stock. Keep Rocket Lab on the watchlist for now.