Shares Space Research Corporation (NASDAQ: SPCX) We’ve been in a tailspin lately. The rocket company, which is also eyeing a huge opportunity in artificial intelligence (AI), initially soared when its shares began trading last month, but gains have slowed significantly since then. The stock fell below its IPO price of $135 last week and closed at just under $124 on Friday.
Will the stock better known as SpaceX continue to fall or is it likely to recover? That’s where I think things are going.
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Why SpaceX stock could end the year below $100
SpaceX, for all its hype, is a wildly overvalued stock based primarily on rosy expectations for future growth rather than strong fundamentals. This is a big risk, especially in a market that looks as turbulent as this one. While the stock’s initial rally was promising and at one point it looked like its valuation could top $3 trillion, a pullback was highly likely. In fact, it happened sooner than I expected.
However, even today, as stock prices fall, their market capitalization remains extremely high at $1.6 trillion. After all, this is a business that had sales of $19 billion last year and a net loss of more than $4.9 billion. These are not the numbers you would expect from a business at this valuation. Momentum and excitement may cause share prices to rise, but this is unlikely to last long.
With SpaceX stock lock-ups set to expire later this year, insiders may have a strong incentive to sell their shares given the company’s inflated valuation. Thus, there may be even more downward pressure on the stock in the near future. That’s why I don’t think we should expect the stock to trade much lower this year, and why it could end the year below $100.
Buying SpaceX shares today is a big gamble
If SpaceX can put data centers in space and help send people to Mars, its value could skyrocket. The problem with a company’s growth story is that it’s based on extremely high hopes, and the man leading the business, Elon Musk, is known for making rosy forecasts and setting high expectations, but often falling short one way or another.
High expectations coupled with poor financials could doom SpaceX stock further in both the short and long term, so I’d stay away from this one.
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David Jagielski, CPA, has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
