Whatever you might say about the stock market life of Space Exploration Technologies (NASDAQ: SPCX) so far, it has been far from boring. SpaceX stock initially surged after listing under two months ago. But it is a third cheaper today than its listing price back then.
So, could that discount to the listing price (let alone the higher price it achieved in the days following that) suggest that the current stock price is a potential bargain? Or is the company, with its $1.4trn market capitalisation, still expensive?
The growth story here is impressive
Either analysis could be correct. Time will ultimately tell.
To say that a loss-making company with a market capitalisation well north of $1trn is cheap may sound improbable.
But in its first quarterly results since listing, published this week, the rocket company announced that revenues grew 92% year on year, to $7.8bn. That sort of growth for a company already generating billions of dollars in quarterly revenue is exceptional.
If SpaceX can keep up the pace, or even accelerate it, that might help support the idea that this is a high-growth company with lots of potential ahead of it. Potentially that could support a robust valuation for SpaceX stock.
Revenue growth is not the only positive
Another positive aspect of the results was that adjusted earnings before interest, tax, depreciation, and amortisation (EBITDA) nearly tripled to $3.5bn.
I tend to treat EBITDA with caution at minimum, as things like interest and tax are real costs. However, many investors regard EBITDA as a useful measure. A company like SpaceX that is spending heavily developing technology may spend hard cash now that is amortised as a non-cash cost over decades.
SpaceX’s sharply improved EBITDA could again be interpreted to support the idea that this is a high-growth business.
But SpaceX continues to alarm me
However, the quarterly results also contained some red flags that I think support a bearish view on SpaceX stock even at its current price.
One was capital expenditure. In the same quarter last year, that came in at an already hefty $2.8bn. This time around, it ballooned to $18.4bn.
That is well more than double the revenue for the quarter.
While the revenue growth was impressive, the capex growth massively outstripped it. In the short- to medium-term, that may be sustainable if the company can raise finance to support it, but over the long term I do not consider it as a viable business model.
Lots of potential, but lots of unknowns
If SpaceX keeps playing to its strengths, such as proprietary rocket technology, a large Starlink user base, and relationships with deep-pocketed government customers, I think it could potentially turn into a terrific business in years to come.
If so, the current SpaceX stock price could yet seem like a real bargain in retrospect.
But there are lots of risks here. The company has not proven that it has a viable business model that can make money. It is spending cash like a drunken sailor. Meanwhile, competition in all of its key businesses is hotting up, potentially making it harder to become profitable over time.
To me, the share price still looks unjustifiably high.
Instead of investing in SpaceX, I am on the lookout for other growth stories with proven business models and much more attractive valuations.
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Christopher Ruane does not hold any positions in the companies mentioned.
This story originally appeared on Motley Fool
