Space Exploration Technologies (SPCX +0.52%) (SpaceX) set a stock market record with its initial public offering on June 12. The company raised $75 billion and began with an initial valuation of $1.77 trillion. The average investor couldn't invest at SpaceX's $135 IPO price, so many are now sitting in the red, with the stock down over 28% from its June 16 high.
Despite SpaceX's rough start since its IPO, there's one Wall Street analyst who sees the stock skyrocketing (no pun intended) by over 450%. It's undoubtedly a bold prediction, but should investors buy into the hype? Let's see.
Image source: The Motley Fool.
Where would SpaceX stand if it achieves the predicted gains?
Price targets for SpaceX vary widely, with some predicting a drop from current levels and others expecting explosive gains. Financial institution Raymond James' Brian Gesuale set the bar extremely high for SpaceX, setting his target price at $800.
At the end of trading on July 10, SpaceX's price was just over $145, meaning that to hit Gesuale's $800 target, it would need to increase by 452%. SpaceX's market cap is currently $1.9 trillion, so reaching the $800 mark would value the company at $10.5 trillion -- more than double the market cap of the world's most valuable public company, Nvidia ($5.1 trillion).
NASDAQ: SPCX
Key Data Points
What are the chances of SpaceX reaching $800?
To be fair, Gesuale didn't say that SpaceX would hit $800 this year. That said, here are the approximate average annual returns SpaceX would need to produce to hit $800 in different time spans:
| Years | Average Annual Returns |
|---|---|
| 3 | 77% |
| 5 | 41% |
| 10 | 19% |
Table by the author. Returns rounded up to the nearest whole percentage.
Given the historical performance of mega IPOs -- where most underperform the market in the first few years post-IPO -- I don't foresee SpaceX averaging 77% annual returns over the next three years or 41% annual returns over the next five years. The more feasible route would be averaging 19% annual returns over the next decade.
Right now, it seems that much of SpaceX's movements are fueled by hype and speculation rather than actual investing. If you're investing in SpaceX for the long run, much of what it's promising beyond its current businesses (like data centers in space) is realistically at least a decade away from becoming feasible.
Since SpaceX started out with such a high valuation, I believe its upside is much more limited than an $800 price target would suggest. Nobody can predict how the stock will perform, and it could very well reach $800, but I don't see it happening in the foreseeable future. I wouldn't invest using that price target as a baseline.
