Key Points
Just about everyone had their eyes on the Space Exploration Technologies‘ (NASDAQ: SPCX) initial public offering (IPO), which ended up being the largest-ever IPO in market history. For weeks, nobody could talk about anything else, and now that the honeymoon stage is over, and the confetti swept away, gravity is bringing the stock back down to Earth.
After hitting a lifetime high of about $225 in mid-June, SpaceX stock now trades in the mid-$150s to the low $160s — a drop of about 30%. Despite the dip, however, I would not call SpaceX a screaming buy — or even a murmuring one.
Part of that is because of SpaceX’s valuation. With a market capitalization of over $2 trillion, SpaceX still trades at more than 100 times trailing revenue. That’s extraordinarily high. For context, Nvidia trades at roughly 19 times sales, Microsoft around 9, and Amazon around 3.5.
Investors are already paying for several years of aggressive growth, and it’s unclear yet what the space stock is capable of delivering. SpaceX itself says its market opportunity is worth about $28.5 trillion. But that’s an estimate, not a solid figure, and since it comes from SpaceX’s own calculations, I’d take it with a grain of salt.
At the time of writing (July 3), the average price target for SpaceX is about $188, representing 17.5% upside. This average will likely change on July 7, the day the “quiet period” for underwriters involved in SpaceX’s IPO, which included a slew of big-name banks, officially ends. Each of these banks’ analysts will weigh in on what they think SpaceX is worth, which could cause the price to jump higher or sag.
Regardless of what other analysts predict, my opinion is the same: SpaceX has an exciting business, but the price-to-sales ratio is too high for my tastes. Most long-term investors, I think, should wait for more clarity before stepping in.
Should you buy stock in Space Exploration Technologies right now?
Before you buy stock in Space Exploration Technologies, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Space Exploration Technologies wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Netflix made this list on December 17, 2004… if you invested $1,000 at the time of our recommendation, you’d have $409,970!* Or when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $1,200,223!*
Now, it’s worth noting Stock Advisor’s total average return is 916% — a market-crushing outperformance compared to 210% for the S&P 500. Don’t miss the latest top 10 list, available with Stock Advisor, and join an investing community built by individual investors for individual investors.
Steven Porrello has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.
