SpaceX Is Back Above Its IPO Price. Is It too Late to Buy the Stock?
Space Exploration Technologies (SPCX +9.65%) is bouncing back. After dropping to as low as $104 per share, the stock has climbed back above its IPO price of $135, and shares are currently trading at $145 apiece. Some may regret not investing in the rocket company while they still had the chance, but has SpaceX really bottomed out? Let’s find out.
Why SpaceX is rebounding
SpaceX’s first lockup expiration date was Aug. 6. This refers to a set period after an IPO during which a company’s insiders aren’t allowed to sell their shares. Once the period expires, they are free to sell. Many investors believed that once SpaceX’s insiders were legally allowed to sell their shares, they would do so in large quantities, putting downward pressure on the stock.
Image source: The Motley Fool.
This hasn’t happened, which the market is interpreting as evidence that insiders are confident in the company’s business. That’s always a good sign. Also, SpaceX delivered solid second-quarter results. The company’s revenue grew 92% year over year to $7.8 billion, while its net loss was $541 million, much lower than the $1 billion loss reported in the prior-year quarter.
True, SpaceX is investing heavily in its artificial intelligence (AI)-related ambitions. However, the fact that it was able to significantly reduce its net loss despite doing so is a great sign for the bulls. We can also point to SpaceX’s internal revenue projections. CEO Elon Musk thinks the company could generate $1 trillion in annual revenue by 2030.
For all those reasons (and more), Wall Street is excited about the company’s prospects. The Street’s average price target for SpaceX (according to Yahoo! Finance) is $235.69, which represents an upside of about 62% from current levels. So Wall Street thinks it’s not too late to buy the stock.
Consider the bear case
What if Wall Street is being too optimistic? After all, much of SpaceX’s ambitions depend on its next-gen, fully reusable rocket, Starship, which is still undergoing testing. Although it has looked promising so far, investors should consider the possibility that it falls flat in future tests. That may significantly delay the company’s timelines and disrupt the business in the near term.
Even assuming that doesn’t happen — and SpaceX can avoid several other risks — the company’s valuation already assumes that many of its projects will succeed, including Starship. SpaceX’s price-to-sales ratio is 64, when stocks are typically deemed fairly valued below 2.
Even granting that SpaceX is worth a premium due to its dominance in the space industry and attractive opportunities elsewhere, at current levels, the market will severely punish anything short of near-perfect execution. My view is that the stock is more likely to fall than gain 62% over the next 12 months. So, investors should avoid SpaceX right now. There will likely be better entry points.
