Elon Musk's Space Exploration Technologies (SPCX +15.83%) made its market debut on June 12. It was the largest initial public offering (IPO) in history by two different measures. The company raised a record $75 billion, and the stock started trading with a record market capitalization of nearly $1.8 trillion.

SpaceX shares hit an all-time high of $202 on June 16, representing 50% upside from its IPO price of $135. That brought its market value to $2.6 trillion. But the stock has since tumbled 23% to $156 as of June 23.

Wall Street sees that as a buying opportunity. The median target price (from eight analysts) is $238.50 per share, implying 53% upside from the current price. But history says SpaceX stock will decline sharply in the coming months.

Image source: Getty Images.

History says SpaceX stock could drop sharply in the coming months

IPO stocks frequently pop on the first trading day. Since 1980, more than 9,000 companies have listed shares on U.S. stock exchanges, and their share prices increased by an average of 19% on day one, according to Jay Ritter, finance professor at the University of Florida.

SpaceX fit that pattern perfectly. The stock closed 19% higher on the first trading day. But its recent backslide fits another historical pattern. Large IPOs have typically dropped sharply during their first year on the public market. The following chart illustrates that point. It includes the 15 largest U.S. IPO stocks (by market value at the IPO price) since 2006.

Data source: First Trust, Bloomberg.

Among the 15 largest IPOs in the past two decades, the average stock fell 50% from its IPO price at some point during the first year. And the average stock was still 33% below its IPO price at the end of the first year.

What does that mean for SpaceX? If its performance aligns with the historical average, the stock will fall 50% to $67.50 per share at some point during the first year. In addition, the stock will still trade 33% below its IPO price (implying $90 per share) by the end of the first year.

There is one more thing investors should know. A buy-and-hold strategy is usually the best way to profit in the stock market, but it hasn't worked for large IPOs. The 15 stocks shown in the chart have underperformed the S&P 500 (^GSPC +0.62%) by a median of 129 percentage points since listing shares.

In short, rather than participating in those IPOs, investors would have made more money by simply buying an S&P 500 index fund. That doesn't mean SpaceX will always be a bad investment. Instead, it means investors should wait for a more attractive buying opportunity.

Here's an example: Snowflake has underperformed the S&P 500 by 150 percentage points since listing shares in September 2020. But Snowflake has outperformed the S&P 500 by more than 20 percentage points since June 2024. Investors who waited for a better entry point have been rewarded with market-beating returns.

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NASDAQ: SPCX

Space Exploration Technologies

Today's Change

(15.83%) $18.19

Current Price

$133.11

Key Data Points

Market Cap

$1.5TMarket cap calculated using publicly traded shares outstanding only. Does not include unlisted, private, or dual-class non-traded shares. Implied market cap may vary.

Day's Range

$114.53 - $133.48

52wk Range

$104.83 - $225.64

Volume

242.1M

Avg Vol

121M

SpaceX stock trades at an absurdly expensive valuation

Admittedly, historical patterns don't dictate how any stock performs. Past results are no guarantee of future returns. But there is another reason to think SpaceX shares are headed lower in the future.

SpaceX's revenue totaled $19.3 billion in the past four quarters. Given its current market value of $2 trillion, the stock has a price-to-sales ratio of 104. That is absurdly expensive. For context, Palantir Technologies has the highest valuation in the S&P 500 at 55 times sales. That makes SpaceX nearly twice as expensive as the most richly valued stock in the index. That is unsustainable.

Here's the big picture: SpaceX stock is down 23% from its post-IPO peak, but history says shares have much further to fall. In addition, even if you ignore the historical data, SpaceX stock is absurdly expensive.