Space Exploration Technologies (SPCX +1.25%) just went public in June, and after several months of volatility, the stock is up by about 20% from its IPO price and 8% from its opening price on its first day of trading. Yet although it's currently less than $162 per share, some investors are speculating about a potential stock split.
Companies can split their stocks at any time, so such an event is possible, even if it's unlikely at current levels. Nonetheless, one scenario could make SpaceX management consider implementing one sooner rather than later.
Image source: The Motley Fool.
The SpaceX stock-split scenario
I do not personally think a SpaceX stock split will occur anytime soon. I base this call on its price-to-sales (P/S) ratio of 103, a premium level that makes the space stock a risky buy. Nonetheless, speculation has emerged about a scenario that could prove me wrong: a merger with Tesla.
Indeed, SpaceX could go a long way toward reducing its sales valuation premium without Tesla. Analysts forecast that the space company will book revenue of $45 billion for 2026. At the current market cap of around $2.2 trillion, that gives it a forward P/S ratio of 49.
If one combines that with Tesla's sales, the forecast 2026 revenue rises to $152 billion. At a combined $3.7 trillion market cap, that would be a forward P/S ratio of 24.
At their current market caps, a combined SpaceX and Tesla would be priced at around $282 per share. Raising the P/S ratio to 107 for this hypothetical combined company would presumably lead to a stock price of around $1,260 per share, placing it into stock-split territory.
NASDAQ: SPCX
Key Data Points
Valuations are key to the stock split scenario
The conditions under which a stock split would be warranted rest on SpaceX maintaining its triple-digit P/S ratio.
The average P/S ratio for the S&P 500 (^GSPC +0.59%) is 3.9, so that remains a significant premium. Nonetheless, P/S ratios in the neighborhood of 24 are common for higher-growth stocks on the cutting edge of tech, but if that takes the price to only $282 per share, a stock split is unlikely.
Moreover, SpaceX would have to buck a historical trend set by Nvidia. For now, Nvidia holds the market cap record, with a peak value above $5.7 trillion.
However, despite its phenomenal success over the last four years, Nvidia's P/S ratio peaked at 45 in mid-2023. Even with its continued successes, its P/S ratio has dropped to 19, and its high market cap was a likely factor in that multiple compression.
If SpaceX falls to 19 times sales, the stock price would fall further without significant additional revenue growth. Thus, even though the SpaceX stock-split watch could be closer than one might think from a certain point of view, investors should not look for such a move anytime soon.
