Six weeks ago, Elon Musk's artificial intelligence (AI) and space infrastructure conglomerate, Space Exploration Technologies (SpaceX) (NASDAQ: SPCX), was the talk of Wall Street.
On June 12, SpaceX raised $85.7 billion from its initial public offering (IPO), including the underwriters' overallotment. This nearly tripled the previous largest-ever IPO capital raise of $29.4 billion from overseas oil giant Saudi Aramco.
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But IPO buzz fades quickly on Wall Street, and reality can hit even the most-hyped stocks like a ton of bricks. Since peaking at $225.64 per share intra-day on June 16, SpaceX stock has plunged 45% to less than $124 per share (as of the July 17 close).
Some investors will undoubtedly see a bargain, given Elon Musk's track record at Tesla and SpaceX's opportunity amid the two hottest trends on Wall Street: AI and the space economy. I see far more pain to come for shareholders as historical precedent takes hold.
For starters, SpaceX's insiders (high-ranking executives, board members, and early investors) are set to enjoy the greatest wealth transfer in history. In a matter of weeks, most insiders will be able to sell a portion of their shares to retail investors.
Whereas most newly public companies adhere to a 180-day lockup period, in which insiders can't sell their shares, SpaceX offers a staggered and accelerated unlock schedule that begins two days after the company's first quarterly operating report as a public company. SpaceX is currently estimated to report its latest quarterly operating results on Aug. 6.
The company's float is set to grow every few weeks through mid-December, adding downside pressure on SpaceX stock.
Although it's not uncommon for investors to place high premiums on companies at the forefront of game-changing technologies, SpaceX's valuation is historical nightmare fuel.
No company heralding the charge of a leading innovation has ever sustained a price-to-sales ratio above 30 for any lengthy period. SpaceX is currently trading at 42 times Wall Street's consensus sales estimate for this year. In other words, Musk's company would need to fall nearly 30% more from its current level just to push below historic bubble territory.
Source: Yahoo Finance Top News — This article was automatically imported from the source. Read full article at original source →
