Space Exploration Technologies Corp. (SPCX +3.48%), better known as SpaceX, has only been publicly traded for less than two weeks, but it has already taken investors on quite a rollercoaster ride.
The IPO itself raised $85 billion for the company at a valuation of about $1.8 trillion, with an initial share price of $135. However, the SpaceX IPO was highly oversubscribed (meaning there was more demand than there were shares available), and by the time it opened for trading on the public market, SpaceX shares were over $150.
Over the next few days, SpaceX continued to rally as the initial wave of interest drove strong buying activity, and the stock price reached $225.64, briefly making the company’s market capitalization greater than that of Microsoft (MSFT +1.73%).
Now, we’ve come full circle. As I’m writing this (Tuesday morning), SpaceX is trading for about $149 per share after three consecutive declines, including a sharp 16% plunge on Monday. So, is it time to buy now that shares trade at a price below the level at which the first open-market trades took place?
Image source: Getty Images.
Why is SpaceX down?
The decline in SpaceX stock appears to be a combination of the initial wave of demand for shares post-IPO cooling off and investor skepticism about SpaceX’s capital needs.
As mentioned, the biggest decline happened on Monday, although SpaceX has been in a downtrend for the past few days. And the main catalyst for the steep decline was the announcement that the company plans a $20 billion bond offering to refinance the bridge loan on its balance sheet.
Space Exploration Technologies
Today’s Change
(3.48%) $5.38
Current Price
$159.98
Key Data Points
Market Cap
$2.0T
Day’s Range
$147.12 – $165.47
52wk Range
$147.12 – $225.64
Volume
4.5M
Avg Vol
290.6M
The reaction isn’t necessarily to the bond offering itself. In fact, using investment-grade debt to refinance a higher-interest bridge loan is generally a smart move. But it’s the fact that SpaceX just raised $85 billion, and this implies that much of the IPO proceeds are already committed elsewhere.
Should you buy?
SpaceX still isn’t a cheap stock, although its valuation seems more reasonable now than it did just a few days ago. That’s especially true given the three AI compute deals the company has announced, which collectively will add nearly $28 billion in annual revenue.
One thing to keep in mind is that SpaceX is likely to be a volatile stock for the foreseeable future. Not only do stocks with elevated price-to-sales valuations generally have high volatility, but SpaceX has a multi-tranche lockup expiration that allows insiders to sell shares at certain points over the next year or so.
If you have a multi-year time horizon and want to own SpaceX in your portfolio, the current price can make sense. But it could be a good idea to build a position in SpaceX (or any other volatile stock on your radar) gradually, rather than all at once.
