Is SpaceX a Buy or a Trap for Retail Investors?
Key Points
SpaceX's leadership in various industries makes it a stock investors should not dismiss.
Between now and June 2027, the expirations of insider share lockups will increase the float, which could weigh on the stock.
Its lofty price-to-sales ratio of 95 bakes years' worth of anticipated revenue growth into the stock price.
Investors may find themselves wondering how to approach investing in Space Exploration Technologies (NASDAQ: SPCX). CEO Elon Musk's successes with PayPal and Tesla have shown him to be one of the best technologists and businessmen of the age, but the nature of SpaceX's business and the premium on its stock make the value proposition more challenging to gauge.
So, should investors treat it as a buy or as a trap?
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The positioning of SpaceX stock
Admittedly, SpaceX stock comes with plenty of concerns, even before one considers the fact that the company this year acquired money-losing enterprises such as X (formerly Twitter) and xAI.
The main problem with the stock is how the IPO appeared to favor insiders over average investors. Unlike companies in the past, which were more likely to go public earlier in their growth arcs, Musk waited so long to take SpaceX public that when he did, it was one of the 10 largest companies by market cap in the U.S., denying retail investors an opportunity to participate in years of its growth.
This stands in contrast to Tesla, which is up more than 23,000% since its IPO. Despite those gains, Tesla's market cap is about $1.45 trillion, well under SpaceX's $2.02 trillion.
Moreover, SpaceX's price-to-sales (P/S) ratio is 95, far above the S&P 500's average of 4. That valuation allows insiders and early investors to sell SpaceX stock at a tremendous profit.
Even the most prominent growth stocks rarely have P/S ratios above 30. Thus, buying at SpaceX at its current lofty level looks increasingly risky.
Another challenge for average investors is the lockup expiration schedule. When companies go public, it is standard practice for pre-IPO investors' shares to be locked up for a time, forcing them to wait before selling. As those lockup periods expire, the supply of shares available for new investors to buy increases.
Naturally, that shift in the supply-and-demand dynamic tends to put downward pressure on share prices. Unfortunately for investors, numerous additional lockup expirations will occur between mid-September and mid-2027. The resulting increase in the float of SpaceX stock could become a headwind for its price.
Despite those challenges, investors have good reasons to seek opportune moments to pick up shares of SpaceX. The company dominates the space launch industry, creating business opportunities for both government and private enterprises.
One potential opportunity it is pursuing involves placing AI data centers on constellations of satellites in Earth orbit. Such infrastructure would be able to operate without putting the same pressure on resources -- electricity, land, and fresh water -- that terrestrial data centers do.
Additionally, one of SpaceX's more successful businesses is Starlink. That satellite-enabled broadband service brings internet access to areas that terrestrial networks cannot reach. Given the potential of those businesses and opportunities, SpaceX stock could probably be an attractive choice to add to a portfolio -- at the right price.
Is SpaceX a trap or a buy?
Considering the valuation of SpaceX stock, investors should treat it as a trap -- at least for now.
Its price-to-sales ratio of 95 bakes years' worth of hoped-for revenue growth into the stock price, and that growth is not guaranteed to materialize. And the company is not profitable yet. When also considering that further post-IPO lockup expirations will probably lead to more selling, SpaceX stock could struggle to gain traction from here.
Nonetheless, the company's leadership positions in space launches and space-based internet set it up to potentially play a key role in the AI megatrend. If stock price pullbacks or rising revenues take SpaceX's P/S ratio below 30, the stock might be a buy. However, until then, investors should probably watch this stock from the sidelines.
Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends PayPal and Tesla. The Motley Fool recommends the following options: short December 2026 $62.50 calls on PayPal. The Motley Fool has a disclosure policy.