Key Points
We’re just days away from the SpaceX IPO. The company is reportedly targeting a $1.77 trillion valuation, which would make it one of the largest public debuts in history. If its valuation target is reached, the company aims to raise as much as $75 billion in capital. That’s enough to fund truly groundbreaking growth initiatives, everything from orbital data centers to a human base on the moon.
There are plenty of reasons to believe SpaceX will reach its intended valuation. “We believe we have identified the largest actionable total addressable market in human history,” SpaceX claims in a recent regulatory filing. “We estimate that our quantifiable TAM is $28.5 trillion.”
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There are also reasons to believe shares could struggle out of the gate. “We think the company has been significantly overvalued and investors will have opportunities to buy the stock at more attractive levels after the IPO,” an analyst from Morningstar recently warned. “[L]ong-term investors eager to participate in SpaceX’s future endeavors and potential success will have opportunities to do so with a greater margin of safety than the initial offering is likely to provide.”
No one knows the future. But analyzing historical data from previous IPO stocks can give us some idea of where SpaceX’s stock price might head over the next 12 months.
Image source: Getty Images.
Here’s what the data tells us about where SpaceX’s stock price might go after its IPO
Jay Ritter is the director of the IPO Initiative and an emeritus professor at the University of Florida. He has been tracking the short- and long-term performance of IPO stocks for decades. The compiled data from decades of IPOs paints a clear picture of what to expect for SpaceX.
The first important statistic to understand is that, by and large, IPO stocks tend to perform very well on their first day of trading. This positive first-day performance is often attributed to the chronic underpricing of IPOs. Investment banks and underwriters have an incentive to ensure an IPO performs well. An inability to fully sell out at an intended price can result in bad press for both the IPO company and the underwriters, whose job it was to successfully sell the stock to investors.
From 2012 through 2021, for example — a data set that includes 1,479 public offerings — IPO stocks averaged a whopping 23.6% first-day return. But here’s the catch: Initial positive performances are often offset by relatively worse future returns. Over the three-year period following these IPOs, the average total return was just 10.6%, suggesting that IPO stocks struggled in the years after their initial debuts.
Of course, these figures simply reflect the average performance of an IPO stock. In reality, the trading price of any one single IPO stock is incredibly difficult to predict over both the short term and long term. Some IPO stocks pop by 40% or more on their first trading day. Many others drop in value by double digits.
There’s a strong floor for SpaceX’s lofty valuation given the success of its rocket and Starlink divisions. But the company’s AI division — which its recent prospectus attributes significant potential value to — remains unprofitable, with many experts questioning its long-term valuation.
Based on the data, I expect SpaceX shares to perform well on their initial day of trading. But given the lofty valuation and historical data from other IPOs, I wouldn’t be surprised to see SpaceX stock struggle over the next 12 months.
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Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
