Shares in Space Exploration Technologies Corporation (NASDAQ:SPCX) – aka SpaceX – are 18.6% off their highs. But nothing has changed with the underlying business.
The company has a huge competitive position and the market it operates in is very real. But ultimately, that’s not the only thing that matters with investing.
What investing is (and isn’t)
Long-term investing, stripped of jargon, is one question. How much cash does a company hand back relative to what you paid?
Put £10,000 into something with a genuine shot at 9% annual returns, and 10 years of compounding turns that into roughly £23,670. The hard part is the patience, not the maths.
Miss out entirely in Year 1, and the remaining nine years only need a touch over 10%, not 9%, to land in the same place. A blank first year barely moves the target.
That’s something I don’t think people pay enough attention to. Especially not in today’s market, where the big question seems to be how long stocks will keep going up.
Unfortunately, it’s the reality for anyone looking at stocks as serious investments. And from that perspective, SpaceX looks like a unique proposition.
SpaceX’s price tag
SpaceX launched on the stock market on 12 June. It went up and then down, but more buying is on the way.
The company joins the Nasdaq 100 on 7 July. That will result in index funds buying regardless of price.
The underlying business carried out more than 80% of the world’s mass to orbit last year. And demand from governments and satellite operators looks durable.
The issue is the price. Despite falling recently, the stock still has a roughly $2trn valuation.
In that context, 2025’s adjusted EBITDA of $6.6bn implies a return of 0.33%. That means the company has to grow a lot — and quickly.
I’m not saying it can’t or won’t. But investing is about what’s likely, rather than what’s possible and I’ve got my eye on a cheaper – but less exciting – alternative.
Less expensive, less exciting
Like most companies, Broadridge Financial Solutions (NYSE: BR) is less high-octane than SpaceX. Then again, that’s true of most stocks.
The business handles proxy voting, shareholder communications, and trade processing for banks and asset managers. Not exciting, but important.
Deals are already in place for 93% of this year’s proxy positions, which removes a lot of uncertainty. And free cash flow comfortably covers a 2.8% dividend yield.
The stock is down 40% from its $270 highs, largely due to artificial intelligence (AI) fears. And the risk of disintermediation is worth taking seriously.
The question is whether the potential rewards are worth the risk. And $1.1bn in free cash flows translates to a 6.8% return on a $16bn business.
For shares in a near-monopoly, that’s unusually cheap. More importantly, it’s the kind of valuation that – left alone – does most of the work by itself.
Two very different ideas
SpaceX is an outstanding business. But it’s priced as though nothing is going to go wrong for years and that makes it risky.
By contrast, Broadridge is a less exciting one priced as though something already has. And that’s why it’s the one on my buy list in July.
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Stephen Wright owns shares in Broadridge Financial Solutions.
