A 42% increase in a matter of weeks is a very strong performance for any share. That is exactly what has happened to the price of Space Exploration Technologies (NASDAQ: SPCX) since the first week of August. It may have its detractors, but SpaceX stock’s recent performance is the stuff of investors’ dreams.
I still do not have any in my portfolio. Could now be a smart time to change that?
There’s more than momentum driving this rally…
Given the high profile SpaceX stock has enjoyed since listing on the stock market this summer, it can be tempting to look at the sort of price rise we have seen recently and write it off as just dizzying momentum driven by over-excited investors.
It could turn out to be that, in fairness. But I think there is probably more to it. For starters, SpaceX has a market capitalisation of $2.1trn. This is not some tiddler that can be significantly affected by small trades.
The upswing has followed the company’s quarterly results last month. They seem to have been the catalyst for the positive share price movement. In some ways that is understandable. As a newly-listed company, investors are keen to feel reassured that SpaceX is not just hype but a serious growth business.
Reporting quarterly revenues of $7.8bn – a 92% year-on-year increase – certainly delivered on that score.
… But there’s still a valuation conundrum here
Still, while that growth rate is highly impressive, it equates to around $30bn-£35bn of revenues in a year. That is a lot – but hardly justifies a market-cap north of $2trn, in my view.
Even allowing for the prospect of ongoing strong growth, that looks very expensive to me.
Ignoring the price-to-sales ratio for a moment, what about earnings?
Here too, the current SpaceX stock price looks hard to justify from my perspective. The company is loss-making and burning through cash at a fast clip. Not only that, but it is not pacifying investors by building up hopes of free cash flow soon. Rather, it has said it will need to keep spending heavily on capital expenditure.
This then, is the conundrum. Is a loss-making company without a proven profitable business model worth over $2trn? I think it is not. But clearly, some people think it is. That optimism could yet push the price higher, I reckon.
Lots to look out for
I do see reasons for optimism, in fairness. SpaceX has proven technology, much of it proprietary. It has a significant, deep-pocketed customer base. It is strategically focused on areas that are expected to see rapid demand/growth in coming decades, such as satellite launches.
If it keeps growing fast, plays to those strengths and demonstrates that it has a plan to move into profit, I think investor excitement could potentially drive the SpaceX stock price higher from here.
But it faces multiple risks as a business, including growing competition and the prospect of tighter regulation in its AI business.
At the current price, I will not touch it with a bargepole. After all, there are other growth stocks in the market I see as far more attractively valued.
What growth stock do we like better than SpaceX right now?
One of our Share Advisor analysts has just released a brand new stock report that we think is a must-read for any investor looking to try and generate potential growth.
And the best bit is that you can see if for yourself, right now, absolutely free of charge!
No jargon. No hard sell. Just a clear look at a growth share idea we think is worth your time.
Christopher Ruane does not hold any positions in the companies mentioned.
A 42% increase in a matter of weeks is a very strong performance for any share. That is exactly what has happened to the price of Space Exploration Technologies (NASDAQ: SPCX) since the first week of August. It may have its detractors, but SpaceX stock’s recent performance is the stuff of investors’ dreams.
I still do not have any in my portfolio. Could now be a smart time to change that?
There’s more than momentum driving this rally…
Given the high profile SpaceX stock has enjoyed since listing on the stock market this summer, it can be tempting to look at the sort of price rise we have seen recently and write it off as just dizzying momentum driven by over-excited investors.
It could turn out to be that, in fairness. But I think there is probably more to it. For starters, SpaceX has a market capitalisation of $2.1trn. This is not some tiddler that can be significantly affected by small trades.
The upswing has followed the company’s quarterly results last month. They seem to have been the catalyst for the positive share price movement. In some ways that is understandable. As a newly-listed company, investors are keen to feel reassured that SpaceX is not just hype but a serious growth business.
Reporting quarterly revenues of $7.8bn – a 92% year-on-year increase – certainly delivered on that score.
… But there’s still a valuation conundrum here
Still, while that growth rate is highly impressive, it equates to around $30bn-£35bn of revenues in a year. That is a lot – but hardly justifies a market-cap north of $2trn, in my view.
Even allowing for the prospect of ongoing strong growth, that looks very expensive to me.
Ignoring the price-to-sales ratio for a moment, what about earnings?
Here too, the current SpaceX stock price looks hard to justify from my perspective. The company is loss-making and burning through cash at a fast clip. Not only that, but it is not pacifying investors by building up hopes of free cash flow soon. Rather, it has said it will need to keep spending heavily on capital expenditure.
This then, is the conundrum. Is a loss-making company without a proven profitable business model worth over $2trn? I think it is not. But clearly, some people think it is. That optimism could yet push the price higher, I reckon.
Lots to look out for
I do see reasons for optimism, in fairness. SpaceX has proven technology, much of it proprietary. It has a significant, deep-pocketed customer base. It is strategically focused on areas that are expected to see rapid demand/growth in coming decades, such as satellite launches.
If it keeps growing fast, plays to those strengths and demonstrates that it has a plan to move into profit, I think investor excitement could potentially drive the SpaceX stock price higher from here.
But it faces multiple risks as a business, including growing competition and the prospect of tighter regulation in its AI business.
At the current price, I will not touch it with a bargepole. After all, there are other growth stocks in the market I see as far more attractively valued.
What growth stock do we like better than SpaceX right now?
One of our Share Advisor analysts has just released a brand new stock report that we think is a must-read for any investor looking to try and generate potential growth.
And the best bit is that you can see if for yourself, right now, absolutely free of charge!
No jargon. No hard sell. Just a clear look at a growth share idea we think is worth your time.
Christopher Ruane does not hold any positions in the companies mentioned.
