When it comes to investing for retirement, many people take a risk-averse view. That is understandable (and can be wise). The point of putting money into a SIPP over the years is, after all, to try and earn more to help fund retirement, not throw it away on risky speculation.
So, where does that leave a racy stock like Space Exploration Technologies (NASDAQ: SPCX), commonly known as SpaceX?
Right now, the stratospheric valuation alone means I have no plans to add SpaceX to my SIPP. A $2.7trn market capitalisation for a company with under $20bn of annual revenue strikes me as bonkers.
But, in some ways, I actually think SpaceX ticks a lot of the boxes of what can make a brilliant share for a SIPP.
Looking to the future
One mistake many investors make is stuffing their SIPP only with high-yield shares in companies whose glory days are in the past.
Why do I see that as a mistake?
After all, businesses like BT and British American Tobacco may have declining revenues, but they remain substantial enterprises and offer attractive dividends.
The challenge as I see it – and I do own some high-income shares – is that a company that has a business likely to decline over the long term seems unlikely to appreciate a lot in value over time.
Yes, it may be a cash cow that can keep throwing off large dividends. But that is the main attraction.
Growth — and exponential growth
But wait, you might say. British American Tobacco has a 5.4% dividend yield. It has grown its dividend per share annually for decades.
And its share price is also up an impressive 61% over the past five years.
That is true. But compare that to the share price growth of UK-based SpaceX supplier Filtronic over the same period.
Filtronic does not pay a dividend – but its share price has gone up 3,240% over five years.
I understand the appeal of income shares. I have previously owned British American Tobacco in my SIPP — and Filtronic.
But high-yield businesses with limited growth prospects lack the potentially explosive growth potential of a Filtronic or a SpaceX. Filling a SIPP only with income shares can mean missing out on some potentially great growth opportunities.
Right business, right time
SpaceX has a lot going for it, as I see it.
Its potential target market is large. The market for satellite Internet is already substantial. So is demand for satellite launches. SpaceX may be ahead of the curve in identifying other potentially large future markets.
Unlike many hyped growth shares, SpaceX already has a substantial business with a sizeable customer base and substantial revenues. That gives it a strong basis for future growth.
Its technological prowess and track record already help set it apart from less experienced rivals.
There are risks, of course. Geopolitical risks loom large given the nature of the business. The company’s expenditure on unproven ideas could send it into the stratosphere – but is also a big risk to cash flows.
In some ways the long-term outlook and strong growth prospects of SpaceX could ultimately mean it may be a good fit for my SIPP.
First, though, I want more evidence of a sustainably profitable business model – and a much more attractive share price.
Should you invest £5,000 in Space Exploration Technologies Corp. - Class A right now?
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Christopher Ruane does not hold any positions in the companies mentioned.
