Down 29% from its peak, is the SpaceX share price now cheap – or overpriced?

The life of Space Exploration Technologies (NASDAQ: SPCX) as a listed company may have been short so far — but it has certainly not been short on drama. It seems hard to believe that it is only a couple of months since SpaceX stock became available directly to the investing public, given how wild its share price movements have been since then.

After initially soaring, the SpaceX share price peaked a couple of months ago, just days after listing. Since then it has fallen and lately started rising again. That rise has been interesting. The stock is up 32% so far in August alone! Still, that leaves it 29% below its highest point back in June.

But with positive momentum looking strong, could this now be a bargain for investors to consider?

Up, down, all over the place

Why has the SpaceX share price shown some volatility in such a short period of time? Sometimes, share prices are volatile because there are not many of the shares available in the market (something known as being thinly traded) or the market capitalisation is tiny.

Clearly, that is not the case with SpaceX. It commands a market capitalisation of just under $2trn and over 1m SpaceX shares are traded each day on average.

So what is going on here? I think there is a fundamental split between what different people think SpaceX is worth.

Nobody, I think, reckons SpaceX merits it current valuation because of current business performance. After all, the business is lossmaking and burning through cash – something that could become even worse as it scales up capital expenditure as part of its expansion plans.

Rather, the current valuation to a large extent reflects competing visions of what SpaceX may be worth in future.

Loads of potential

Now, that is not unusual. After all, most investors buying shares in any company are not only looking at its current business performance but also how they view its future prospects, relative to today’s share price.

What is unusual about SpaceX in this context though, is its current valuation. It is one of the world’s biggest listed companies by market capitalisation.

Personally, I reckon SpaceX’s business has bags of potential. It already has deep expertise in space launches and satellite wifi. Indeed the Starlink satellite wifi business is turning a handy profit.

With proprietary technology, industry-leading expertise and an existing customer base, I see plenty of room for the business to grow.

Here’s my concern

But the opportunities SpaceX is focusing on have not gone unnoticed. Competition is already significant – and growing. That poses a risk to profitability, which is acute given that SpaceX is already heavily lossmaking.

If the business model lives up to its potential, SpaceX grows massively and becomes profitable, its current share price could yet come to look like a bargain in retrospect. But whether that will happen remains to be seen. For now, this is an unproven business (in terms of profitability) burning through cash at a rate of knots.

Looked at like that, I think the share currently looks badly overpriced. I am ignoring the recent rally and instead of buying into SpaceX, am scouring the market for better priced opportunities in growth businesses that are already profitable.

Should you invest £5,000 in SpaceX right now?

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Christopher Ruane does not hold any positions in the companies mentioned.