The only thing I’m 100% convinced of concerning a stock market crash is that we’ll have one in the future. That’s just what history tells us. But what it can’t tell us is when the next one might be. So rather than trying to guess at timing, I think investors should do two things.
One is keep an eye on the things that we think might kick off a slump. And the other is keep buying good stocks at fair valuations to hold for the long term. On that first item, I reckon a big US stock market sell-off is the biggest danger… and SpaceX (NASDAQ: SPCX) might just be the trigger.
The big bear is bearish
Here’s what famous US short-seller Michael Burry said about SpaceX this week…
I am not involved with SpaceX now. Neither short nor, ahem, long … [SpaceX is] fundamentally a small space company, a niche telecom, a bedeviled social media company, and a Coreweave-light.
— Michael Burry, 16 June
He hasn’t taken up any short positions on the stock, as we might have expected. But he says that’s because short option pricing is too high right now.
Oh, and Coreweave is a US cloud provider, set to enter the NASDAQ-100 index this month. It has a market cap of ‘only’ around $64bn.
How did we get here?
The SpaceX price surge has mostly been driven by retail investors competing for the relatively small number of shares currently available. Only about 4.25% of the company is currently tradable on the open market.
The vast majority of the rest is still held by Elon Musk, employees, and pre-IPO shareholders — like Scottish Mortgage Investment Trust, which has around 17% of its shareholders’ funds in the stock.
Many of those holding the 95.75% bulk of the shares are tied into lock-up restrictions. What might happen when they’re free to sell and try to pocket their winnings? The thought of it makes me shudder a bit.
A UK effect?
Now, the naysayers might be wrong about SpaceX. In fact, the majority of the investing world seems to believe they are. And I think it actually could be a long-term success.
It’s just that the current lack of profit, plus a price-to-sales (P/S) ratio over 100, means the price isn’t right for me. Most Magnificent 7 stocks have P/S ratios about 10 — and the S&P 500 average is around three. Yes, just three!
But what’s this got to do with a UK stock market crash, I hear you ask. Remember the old saying, “When Wall Street sneezes, the world catches a cold“? Then picture an AI pull-back, led by investors bailing out of SpaceX.
I obviously don’t know that will happen. But if it does, I can’t see UK investors escaping the pain.
So what about SpaceX?
If it wasn’t for the valuation, I could be quite excited about SpaceX’s prospects. And Elon Musk magic might prove me wrong. But I just think would-be investors might consider holding off for a while.
Should you invest £5,000 in Space Exploration Technologies Corp. - Class A right now?
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Alan Oscroft owns shares in Scottish Mortgage Investment Trust.
