Keithen Drury, The Motley Fool
5 min read
Space Exploration Technologies (NASDAQ: SPCX) was a stock that many were skeptical of when it went public. While there was a sound business behind it, its early $2 trillion market cap seemed a bit suspect. Fast-forward a few months from its initial public offering to today, and after some notable ups and downs, its market cap sits at about $2 trillion. However, what has changed along the way is the market’s perception of the business.
While I was skeptical of SpaceX’s financial viability as a $2 trillion company, it recently showed investors why it deserves that valuation, primarily through its incredible growth. This is coming from business segments that some investors might not have expected, and it could be the factor SpaceX needs to drive it to new highs over the next few years.
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But where will SpaceX stock be in three years? I think it could be trading at $375 per share, about two and a half times today’s price. If it can deliver returns like that, then it makes for a screaming buy now. So, how will SpaceX get there? Let’s take a look.
SpaceX’s growth will come from non-space places
If you ask the average person what SpaceX does, they’ll likely talk about the fact that it launches rockets that put payloads into space, and then lands those launch platforms back on Earth for reuse. That’s entirely accurate, but it overlooks the company’s higher-growth segments.
In the third quarter, SpaceX’s space segment revenue rose from $1.67 billion to $1.77 billion year over year, or about 6% growth. That’s not impressive at all and would have many investors questioning it as a stock pick. However, SpaceX’s space business isn’t what’s exciting.
Its two other business segments are. SpaceX’s connectivity and super intelligence (SI) divisions are the two reasons to invest in SpaceX.
Connectivity includes the Starlink broadband service, which gives its users access to satellite-based internet nearly anywhere in the world. This division’s revenue rose from $3.1 billion in the prior-year quarter to $5.25 billion this time. That’s a 69% growth rate. Furthermore, connectivity generated $2.4 billion in operating income and was the primary reason SpaceX was profitable in Q3. This service should continue to grow at a strong pace and will help make SpaceX’s stock a market-crushing one.
