Going to the stars and back is the business of Space Exploration Technologies (NASDAQ: SPCX), best known as SpaceX. But what about its stock – is it heading for the stratosphere, or falling down to Earth?
Since the middle of last month, the SpaceX share price has crashed, losing around a quarter of its value in just a few weeks. That means it is a lot cheaper now than it was.
So could now be the time to buy some SpaceX shares for my portfolio?
Three levels of (un)predictability
In a word, no. I will not be touching this with whatever the intergalactic equivalent of a bargepole is.
To explain why, let me contrast three types of business scenarios. First is where the outlook for an industry seems fairly clear and how a business will do within it seems relatively straightforward to predict. A regulated utility might fall into this definition.
Of course, nothing is guaranteed in life except death and taxes. Even the best-run business in the staidest industry can run into surprises. But as a general rule, this sort of business ought to be relatively easy to value.
A second situation is more difficult to evaluate: when a company is still growing strongly. Will its improved scale increase economic efficiencies, pushing up profits exponentially? Or could growth ambitions turn out to be a money pit?
Analysing this situation correctly can turn out to be a lucrative call for investors. But it can be difficult to do and clearly carries risks.
A third situation adds another layer of complexity. Not only is a company growing fast, but its industry is also evolving significantly. That makes it very difficult to assess how a business might do even two or three years down the line, let alone longer term.
SpaceX, in my opinion, fits into this third category.
Lots riding on the unknown, or unknowable
Thinking like that, SpaceX might yet turn out to merit its current $2trn market capitalisation. In fact, longer term, perhaps today’s SpaceX share price will come to look like a bargain.
After all, industries like satellite launching and wifi provision do look set to grow substantially. SpaceX has a strong position already in some of its business areas, including Starlink wifi and satellite launches.
But there are a lot of unknowns here. How will the relevant industries develop? Will SpaceX be able to command a strong competitive position? What will the economics of its business look like?
Why I’m not ready to invest
Based on its current financial performance, the share price of lossmaking SpaceX looks ridiculously high to me. Clearly investors are taking a view on what they expect the company to do and valuing it based on that.
That makes sense to me – it is how I invest too. The challenge is that, unlike many businesses, I feel it is so difficult to assess with any degree of confidence what SpaceX’s future business performance and competitive landscape may look like.
Without feeling more comfortable about that, I am not ready to invest. Fortunately, I see lots of other growth opportunities in the market.
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.
