This $5 billion company is poised to thrive in an industry that could surpass $1 trillion by 2040.

It's hard to pinpoint which companies to invest in if you're looking for exposure to the space sector, a potentially lucrative opportunity over the coming decades. Space is already a hot industry for companies launching satellites into orbit, and tourism may eventually add fuel to that fire.

Elon Musk's SpaceX, a large space company, isn't public. However, Rocket Lab (RKLB 1.86%), a SpaceX competitor, is. Rocket Lab isn't near SpaceX's current size but it is far from settling. It has shown encouraging progress and is poised to remain a long-term industry competitor, which makes it arguably the best space stock investors can buy today.

Here is why investors should consider stashing Rocket Lab in a diversified portfolio for the foreseeable future.

Rocket Lab provides spacecraft and rocket launch services to commercial and government customers. It specializes in small launches, which can lift up to 11,000 pounds into lower orbit. Rocket Lab has accounted for approximately 64% of non-SpaceX U.S. orbital launches this year, so it's a notable player in space launches. Eventually, the company plans to expand its business to in-space data and services, which would generate higher-margin recurring revenue.

Importantly, Rocket Lab has gained traction with government and commercial clients. Its customers include NASA, the United States Space Force, Canon, Synspective, Tyvak, and more. Its primary work is taking satellites to orbit. Building these relationships is critical as Rocket Lab eventually expands to medium launches, SpaceX's bread and butter. Rocket Lab's medium launch rocket is called Neutron and is currently on pace to conduct its first flight in mid-2025 after hitting some delays. Rocket Labs estimates a medium-launch rocket would unlock a $10 billion addressable market.

SpaceX is the king of the space mountain, with revenue estimated at $8.7 billion last year. For comparison, Rocket Lab did $106 million in Q2 and $326 million over the past four quarters. Morgan Stanley estimates the global space industry will exceed $1 trillion by 2040, so there should be plenty of room for multiple winners, especially since Rocket Lab wants to provide additional services over time.

Understandably, researching, developing, and building rockets and spacecraft costs a lot. That makes Rocket Lab a speculative investment because the company is spending more than it's bringing in. The good news is that Rocket Lab's spending seems manageable, especially with business momentum building.

Rocket Lab has burned about $149 million in cash over the past year. The company currently has $497 million in cash and short-term investments, which would fund operations for approximately three years at this rate. Rocket Lab raised money earlier this year by taking on debt, putting total long-term debt at $405 million. Generally, I don't like when young companies borrow money, but a capital raise would have hurt shareholders because the stock price was so low at the time.

The debt is a convertible bond due in 2029. This arrangement at least gives the company financial clarity for the next few years, so investors should monitor it over time but not necessarily lose sleep over it. The company's financial positioning could significantly improve once Neutron launches.

Rocket Lab is still down over 50% from its 2021 highs despite the stock doubling over the past year.

Valuing a young company like Rocket Lab is difficult. Its current $5 billion market cap seems steep for a business doing just $326 million in revenue. However, one could argue that Rocket Lab is one of the only public space companies and might be the most likely to establish itself as an industry leader.

In other words, you're not buying Rocket Lab for what it is today but for what it might be in a decade from now.

Additionally, the stock faces some potential catalysts moving forward. Positive Neutron developments will likely boost the market's view of Rocket Lab, and falling interest rates will make debt cheaper, potentially helping the company fund its growth for less. Rocket Lab is a stock that may not pay off right away. The speculative nature of the business and space in general could make the stock highly volatile. However, it's a unique opportunity to invest in a SpaceX-like business with all the ingredients to stand out on its own merit.