SpaceX Just Fell Below Its IPO Price. Here's What Happens Next, According to History.

Key Points

All eyes have been on Space Exploration Technologies (NASDAQ: SPCX) since its explosive initial public offering. The technology and industrial giant may have stirred up so much excitement due to its exciting mix of businesses, the leadership of the ambitious Elon Musk, and the sheer size of the operation. SpaceX raised more than $85 billion after the exercise of an overallotment option to complete the biggest IPO ever.

And the company launched with a market value of more than $2 trillion — the other trillion-dollar stocks, such as Nvidia and Apple, took years to reach such a valuation.

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SpaceX climbed nearly 20% in its first day of trading and continued to advance over the next few days — but since that point, the stock has stumbled. And just this week, it fell below its IPO price of $135. What happens next? History offers an answer that’s crystal clear.

Image source: Getty Images.

Cutting costs of rocket launches

First, though, let’s explore the SpaceX story so far. The company was founded by Elon Musk, also known as the chief executive officer of Tesla, back in 2002, and since then has aimed to drastically cut the costs of rocket launches. SpaceX has been successful so far — using its reusable rocket technologies, it already reduced costs by 85% in 2010, according to NASA. This year, the company aims to launch its fully reusable rocket Starship with payloads, further advancing toward this goal.

In addition to the rocket launch business, SpaceX also operates a connectivity arm called Starlink and an artificial intelligence (AI) unit. Starlink is the main revenue driver so far, bringing in revenue of $11.4 billion last year on total revenue of $18 billion as it grew its subscriber base. The AI unit has major goals, such as developing data centers in space, but so far, it’s been a drag on earnings — this is because it requires enormous investment. Last year, capital spending for the AI business reached $12 billion, driving SpaceX to a net loss.

Musk is committed to innovation, and that’s something many investors like, and SpaceX aims to be a game changer in its three businesses. That’s positive and is attracting growth investors. But it’s important to keep in mind that certain goals require the development of complex technology — and if the technology fails, SpaceX won’t reach those goals. Meanwhile, the need to heavily invest could stand in the way of profitability for some time. So investing in SpaceX today involves a certain degree of risk.

Some of these elements could have weighed on investors’ minds in recent days — and as a result, weighed on SpaceX’s stock performance too.

A look at past IPOs

Now, let’s consider what history has to say about what happens next. A look at 10 of the biggest IPOs, including names such as Rivian Automotive and Coupang, shows that eight posted declines in the three months following their launches. And five of them delivered declines in the double-digits. The average drop over the first three months was 13%.

If SpaceX follows that pattern and posts the average decline, the stock may finish its first three months of trading at around $139, a few dollars above the IPO price.

Of course, it’s impossible to predict the exact path of a stock price. And it’s important to note that the company’s upcoming earnings report could come into play and offer the stock direction. But if history is right, SpaceX could stagnate around current price levels — since it’s already declined more than 13% since the IPO — over the coming two months.

What does this mean for you as an investor? Should you buy SpaceX now that it’s fallen to its IPO level? I don’t think this will be the first and only opportunity to get in on SpaceX stock on the dip, and generally, it’s a better idea to take a look at another earnings report or even two to monitor the company’s progress before buying. Though very aggressive investors may consider adding a few shares of SpaceX to their portfolios now, most investors should hold on for a future buying opportunity.

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Adria Cimino has positions in Tesla. The Motley Fool has positions in and recommends Apple, Nvidia, and Tesla. The Motley Fool recommends Coupang. The Motley Fool has a disclosure policy.