In a few weeks’ time, Stocks and Shares ISA investors like myself will have the opportunity to buy shares in Elon Musk’s space company,SpaceX for their accounts. That’s because the company is shortly about to IPO on the Nasdaq.
But should I buy any of the shares when it goes public? Let’s take a look at the opportunity here.
A generational opportunity?
There’s no doubt that this is a very exciting company. This is a business that offers exposure to satellite broadband/mass connectivity, orbital AI data centres, defence contracts, and much more.
In terms of its total addressable market (TAM), the company believes that it has identified the largest actionable TAM in human history. It sees a TAM of a whopping $28.5trn.
One key growth driver for the group is Starlink. Today, SpaceX has nearly 10,000 Starlink broadband and mobile satellites in Low-Earth Orbit, providing internet connectivity to approximately 10.3m Starlink Subscribers across 164 countries, territories, and other markets.
Last year, revenue in its Connectivity segment, which includes Starlink, was up 50% year on year. So, this area of the business is growing rapidly.
Our mission is to build the systems and technologies necessary to make life multiplanetary, to understand the true nature of the universe, and to extend the light of consciousness to the stars.
SpaceX
Could I lose money on SpaceX?
Digging deeper though, the valuation here is a little hard to digest. Right now, analysts are talking about a figure of $1.75trn.
This is an issue because last year, the company only generated $18.7bn in revenue. So, we’re looking at a price-to-sales ratio of about 94, which is extremely high.
The other thing to note about that $1.75trn valuation is that it would make SpaceX one of the most highly valued companies in the world. At that valuation, it would be bigger than Berkshire Hathaway, Tesla, and Meta.
I think buying at that valuation could limit future returns (and/or lead to losses). For the stock to rise 50%, the valuation would have to climb to $2.6trn.
A better space stock?
Given the sky-high valuation, there are better ways to play the space theme, in my view. One such way is Amazon (NASDAQ: AMZN).
Not many people know it, but this company is quietly building a massive space satellite network (Amazon Leo). Over the last seven years, it has put more than 200 satellites into space and in the years ahead it plans to launch thousands more.
Now, with this stock, we don’t need to worry about a crazy valuation. Because it looks relatively cheap.
It currently trades on a price-to-sales ratio of less than four. At that multiple, I believe very little of the space potential is priced into the stock.
Of course, there are no guarantees that Amazon will be a good investment in the years ahead. It faces plenty of risks including a slowdown in the economy and increased competition from rivals.
However, given its diversified business model (e-commerce, chips, cloud computing, space, etc), I like the risk/reward proposition. I believe this stock is worth considering.
Should you invest £5,000 in Amazon right now?
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Edward Sheldon owns shares in Amazon and Nasdaq
