Space Exploration Technologies (NASDAQ:SPCX) stock is locked in a nasty downtrend right now. Since reaching $225 last month, it has crashed below its $135 IPO price.
In fact, as I write, SpaceX is down at $123 — a fall of about 45% in just one month!
Clearly then, the IPO honeymoon is well and truly over. But at what point do I consider getting involved?
The importance of Starship
The latest blow to the share price came after the 13th test flight of Starship was aborted when several engines failed to ignite. This was the first attempted launch of the 407-foot rocket system since SpaceX’s IPO.
CEO Elon Musk said the firm hopes to do another test flight in a few days. Needless to say, if that ends in a ball of flames, the stock could drop further because much of SpaceX’s long-term growth (and valuation) hinges upon Starship’s success.
Why? Because this colossus is designed to carry far more cargo and eventually people into orbit, opening up much bigger commercial opportunities. These include accelerating Starlink’s constellation expansion and deploying space-based data centres.
Starship is also central to NASA’s vision of building a permanent human base on the Moon. According to PwC, the lunar economy could reach $127bn by 2050.
Crucially, Starship is designed to be reusable, which along with the additional capacity would dramatically lower the cost of getting to space.
Put simply, it would represent a fundamental shift in space economics.
More dark clouds above the stock
Beyond the test flight delay, another thing troubling the market is that some employees and early investors will be able to sell up to 20% of their shares following the company’s Q2 results (sometime in early August).
At that point, around 911m shares could be sold. Then another 7% tranche of shares will unlock later in August.
Given this, it’s not surprising to see short-sellers — those betting against the stock — loading up. According to CNBC, a whopping 29% of SpaceX’s publicly tradeable float is currently sold short.
Even after being cut almost in half, the growth stock still looks extremely pricey. It’s trading at 43 times this year’s expected sales, making SpaceX one of the most expensive stocks in the whole market.
Putting all this together, there’s a case to be made that the stock could be a ticking timebomb. The falling share price and high valuation might encourage many early investors to bail out over the next few months.
What price?
In my experience, waiting until all the IPO hype dies down normally results in a far better buying opportunity. That’s why I very rarely invest in a newly listed company.
