Shares of Space Exploration Technologies Corp (SPCX +1.76%), also known as SpaceX, have been reeling in recent weeks after a hot start to its IPO a month ago. The sell-off has been swift, with the rocket company falling 50% from its high. Investors who ignored valuations and bought at any price have endured significant losses in a short time frame.
However, with such a massive decline, the stock becomes a cheaper, potentially more attractive buy. If it falls below $100, does it become a no-brainer buy?
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SpaceX doesn't belong in the trillion-dollar club
On Monday, SpaceX stock closed at $113.50, with its decline showing no signs of stopping. It doesn't need to go much further into decline for it to potentially fall below $100, which would be symbolic for a stock that hit a high of more than $225 at one point.
At $100, its market cap would be around $1.3 trillion. While at that valuation, it would still be part of the trillion-dollar club, it would be drastically lower than what it was worth when it first went public. For investors, the question becomes when the stock might become too cheap to pass up.
However, even at more than $1 trillion, its valuation would remain obscene. The largest and most valuable companies in the world have not only large, established businesses but are also highly profitable. SpaceX, which incurred a loss of $4.3 billion through just the first three months of this year, doesn't fall into that category. While its quarterly revenue is significant at $4.7 billion, even less valuable companies generate significantly more in sales.
Elon Musk's other company, Tesla, has a valuation of $1.2 trillion, and it's generated more than $100 billion in revenue over the trailing 12 months. However, amid rising competition and declining profits, it has also been falling significantly this year, and may also end up falling below $1 trillion.
NASDAQ: SPCX
Key Data Points
The stock is still a highly risky buy
Future growth expectations play a huge role in SpaceX's inflated valuation. Achieving lofty targets such as putting data centers into space or sending humans to Mars would be incredible feats, but they could take several years and entail considerable uncertainty and risk.
SpaceX, unfortunately, has a lot to prove as a business, and it may still have much more room to fall in value given how egregiously expensive its valuation was when it first began trading. It wasn't justifiable to begin with, and even if it falls below $100, it would still be an expensive buy. For growth-oriented investors, there are many better growth stocks to consider than SpaceX.
