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It took less than a month for SpaceX (NASDAQ: SPCX) shares to nosedive. The share price crashed only weeks after the IPO, dropping 52% from top to bottom. Some were calling Elon Musk’s company a falling knife – not something you want to catch.
How did UK investors react? According to data from AJ Bell, some saw an opportunity. SpaceX is one of the most bought stocks on the platform of late, comprising a significant percentage of all buy orders. What’s going on here? Why are British investors flooding into the ‘space economy’ firm?
Is this quietly a brilliant buying opportunity or have they all got it wrong? Let’s have a look.
Outperforming
I can’t read the minds of every British investor who bought the stock, but based on what’s been going on with SpaceX, I think there might be three main reasons for the surge in interest.
The first was the firm’s first post-IPO earnings update. SpaceX posted a 92% increase in year-on-year revenue (handily beating expectations), narrowed losses significantly, and increased adjusted EBITDA by 191% year-on-year. It’s early days, but the signs are that this is a growing company capable of outperforming analysts’ forecasts.
The second reason for the stock’s popularity is the possibility that it’s trading at a discount. A 50% drop’s nothing to sniff at. And investors getting the chance to buy in below the IPO price might have been too tempting to pass up.
A third explanation is perhaps that SpaceX is nearing ‘meme stock’ status. This means unwarranted swings of 10%+ on a daily basis thanks to the interest of those engaging in risky investments like options and day trading. In short, people are buying because they’re gambling. This means lots of buying and selling.
The big question then: is the interest justified? Could SpaxeX be a good buy?
A buy?
The answer likely comes down to how optimistic you are about the ’space economy’. On the one hand, this is a sector that’s only just got started. That means investing now could be getting in at the ground floor.
On the other? There’s no telling that there’s much money in this. While SpaceX’s growth has been impressive so far, much of the money coming in is from government contracts. Its satellite internet service Starlink is profitable, but $4bn earnings in the last financial year is dwarfed by the company’s $2trn market-cap.
SpaceX is undoubtedly a high-risk/high-reward stock. I wouldn’t be surprised if it crashed another 50% in the months ahead. Nor would I be shocked to see it hit the $800 price target one analysts as put on it. For that reason, I think it’s worth a look for the right type of investor.
Should you invest £5,000 in SpaceX right now?
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John Fieldsend owns shares in SpaceX.
This story originally appeared on Motley Fool
