Few companies have grabbed the attention of investors this year like Space Exploration Technologies (NASDAQ: SPCX), better known as SpaceX. The company's public debut last month briefly made CEO Elon Musk the world's first trillionaire.
The company is setting out to accomplish things no other company has even considered before it, just as it did with reusable rockets, and the long-term potential could be huge. Its registration statement for the initial public offering (IPO) said it has an overall estimated total addressable market of $28.5 trillion.
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Investing in SpaceX requires a long-term mindset. And few investors are better known for the long-term mindset than Warren Buffett. He can provide some excellent insights for investors considering SpaceX for their portfolio. Here are three must-read quotes.
SpaceX had the biggest IPO in history last month, raising over $85 billion once the underwriters exercised their option to buy additional shares. But the fact that the company had no issues raising that much capital from the market speaks to an undeniable truth.
It's why Buffett says he's never bought any IPO: "The idea of saying the best place in the world I could put my money is something where all the selling incentives are there, commissions are higher, the animal spirits are rising, that that's going to be better than 1,000 other things I could buy where there is no similar selling enthusiasm … just doesn't make any sense."
IPOs are a seller's market. The company holds all the cards; underwriters are incentivized to pump the stock. The odds of making a good purchase are against you.
Most IPOs experience a first-day pop in price, but the long-term results aren't usually any better than the overall market. Since 1980, the average IPO has slightly underperformed the market average over the three years following its debut if you could buy the shares at the offer price. That's despite underwriters intentionally underpricing IPOs to drive demand for the stock and a good first-day result.
With SpaceX trading around its IPO price, investors should still exercise some caution.
SpaceX's future depends on many variables. A lot has to go right for it to achieve the potential the market is already pricing into the stock.
Source: Yahoo Finance Top News — This article was automatically imported from the source. Read full article at original source →
