There’s always room in my ISA for an exciting high-growth stock, which is why I bought some shares in Space Exploration Technology (NASDAQ:SPCX), or SpaceX as it’s known, when Elon Musk’s much-hyped group made its stock market debut last month.
But when someone predicts that the shares are 510% undervalued, it’s time to sit up and take even more notice. Let’s take a closer look.
Topsy-turvy
The past month or so has been a rollercoaster ride for SpaceX’s new shareholders. After listing at $150, the stock reached $225 in mid-June. Since then, it’s drifted lower and is now (17 July) 2.9% below its offer price of $135.
To be honest, I was expecting this. With demand for the stock massively exceeding the number of shares available, a mini boom was always on the cards. Some early profit takers have now left the market. However, it’s the future that really matters.
A bit of an outlier
Raymond James got everyone talking when the financial services firm set a 12-month price target for the stock of $800. That’s $500 more than, for example, Morgan Stanley.
The US wealth manager’s optimism is based on forecasts predicting $800bn+ of revenue by 2031. It said: “Just as railroads, electric grids, and the internet reshaped prior economic eras, we believe SpaceX is building the foundational platform for the next generation of industrial capacity.”
If it’s right, Elon Musk’s company would be valued at over $10trn.
Raymond James’ enthusiasm is based on the group’s next-generation rocket, Starship, being able to bring down the cost of getting people and cargo into space by 99%, as well as massively increasing capacity. But its 13th test flight was aborted last night, just a few seconds after its scheduled launch.
However, if everything goes to plan, I believe the group has huge potential. But I have to admit some of the claims made by SpaceX are mind-boggling. It says it has the “largest actionable total addressable market in human history”. In terms of numbers, this equates to a $28.5trn opportunity.
My view
Let’s be honest, the whole thing is a bit speculative.
It’s not profitable and some of its goals are, in my opinion, a little silly. Why would anyone want to live on Mars? However, some of its other plans are more interesting. Indeed, orbiting data centres, the availability of high-speed internet anywhere in the world, and space tourism are more realistic.
We face a number of challenges relating to our business and growth strategy and, ultimately, the achievement of our mission to make life multiplanetary, understand the true nature of the universe, and extend the light of consciousness to the stars.
SpaceX
I own SpaceX stock because, I believe, there’s a small chance that it will meet some of its objectives. If it does, then its shares should be worth more than they are today. How much more? I don’t know. Even if the stock price falls a long way short of $800, all those who participated in the IPO will be sitting on a healthy profit.
But I’m also cautious enough to know that the whole thing could crash and burn. That’s why I only have a small shareholding. Conscious of the risks, I think others could consider adding a few shares to their own portfolios at today’s price.
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James Beard owns shares in Space Exploration Technologies.
