OK, one try only. See if you can guess the stock!
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Hmm. Let’s see.
Looks like a recent IPO. Not down enough to be a Trump stock. Not even down 50% from its post IPO high. But definitely something that is more hype than substance.
Ah ha!! I’ve got it!
SpaceX.
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One of the things I think only a minority of long term investors really understand is how much the average stock moves, even over a 1 year period. This volatility is the price one pays to own individual businesses.
“On average, individual stocks in the S&P 500 swing by about 56.5% (with a median of 45.8%) from their 52-week low to their 52-week high over a one-year period. Smaller-cap stocks experience even wilder swings, averaging a 105% movement from low to high in a single year.”
However, once you understand that these movements are part of the natural course of price discovery, the ups and downs of how the market values the business from day to day means very little.
Is Space X a great business? I don’t know the answer yet. But, I see almost no value in looking at the interim movement of the stock as a determinant of its long term likely success.
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Not to worry, here are some analysts price targets:
| Bank | Rating | Price Target | Upside vs. ~$160 (when coverage began) |
|---|---|---|---|
| Goldman Sachs | Buy | $205 | +28% (Investopedia) |
| Morgan Stanley | Overweight | $300 | +87% (Seeking Alpha) |
| Bank of America | Buy | $250 | +56% (CoinDesk) |
| Citigroup | Buy | $250 | +56% (CoinDesk) |
| J.P. Morgan | Overweight | $225 | +41% (Fortune) |
Pretty tight grouping. So a lot of smart people looked at this and came to the same conclusion.
We know these targets are reliable because after the dot com bust, it was discovered that bank analysts were publically promoting dot.com stocks they knew in fact were worthless in order to gain access to the IPO and associated underwriting fees. So after the bubble burst, regulators instituted a firewall between the analyst side of the bank and the business side, to prevent that type of consumer abuse. So we can trust the price targets are the honest opinions of people with no skin in the game.
I kid! I kid! They got rid of the firewall back in December. Now banks are free to lie to consumers all they want if they can make a buck. If I didn’t know better, I’d say the CEO of SpaceX had political connections in the White House.
P.S. Banks handing the SpaceX IPO include Morgan Stanley, Bank of America, Citigroup, and J.P. Morgan. If that don’t put the dink in coininkydink.
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Totally agree, but we can make educated guesses. SpaceX debuted at P/S of about 110 and a growth rate of about 15%. At that rate, it would take an investor about 33 years to get his money back–actually no. That’s P/S. There is no P/E because there is no E. They have to make some profits before they can return money to investors. There is a big, big hill to climb in other words.
Now, they have announced some leases for unused compute space that appear to be lucrative. I don’t know how much growth is possible there. At some point they are probably going to need that for their own LLMs.
Speaking of which, there is a huge upside for Grok. But right now they are not getting the enterprise uptake that other LLMs are, and it is incredibly capital intensive. The competition is locked in a global game of chicken to see who can spend the most. I don’t think there is room for a 4th best LLM. Big question mark here.
The launch business loses money and competitors like Rocketlab are starting to emerge. It will probably stabilize as a profitable, but unspectacular business.
Starlink is a very good, high margin, business, but it will soon have competition from Amazon, whose unofficial motto is “your margin is our opportunity.” It will probably become a good business with good margins.
Then there are datacenters in space. Sounds cool. Those are at least 10 years in the future, and require technologies that haven’t been invented yet. And it is very possible that other technologies will be invented that remove constraints on terrestrial data centers. I put this as a big question mark too.
So, investors are taking on a huge amount uncompensated risk. The company is a growing at a good, but unspectacular rate, and the current price is based on anticipation of revenue streams that have not arrived and may never arrive.
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I don’t disagrees with your assessment at all. I view Space X as highly speculative. The earnings it will generate are unknown. We are in a market that is beginning to reassess risk. When that happens, highly speculative businesses are the first to get re-evaluated.
But, there isn’t really any new information about Space X, since the IPO. The movement in the price per share says almost nothing about a change in the opportunity, but more so risk appetite.
I passed on Space X, even though I have a substantial Tesla position. I see, with rare exception, almost no value in chasing businesses pre-profitability.
If it were just abstract art, I’d say that chart is upside down. But then again, I know Elon like you know Elon.
We have seen documentation here that the index funds had to pick up SpaceX. This was corruptly taken advantage of by the IPO. The public barely hold SpaceX, but their index funds and other funds have had to buy into sky high rip off pricing.
The nature of the index fund is such that it is required to hold what is considered part of the index. I doubt the Space X IPO represented a substantial holding at the IPO or afterwards. I guess that is one of the advantages of owning individual stocks. You own exactly what and when you want to own.
Dang.
I was gonna guess Pets dot com.
Weird, disconnect between market cap change and operations.
What some $76 billion was issued of SpaceX? That ballpark. Not much to write home about, but that is not how index funds are calculated.
Yes, the standard S&P 500 (SPX) is a float-adjusted, market-capitalization-weighted index. This means larger companies have a much greater impact on the index’s performance than smaller ones
Yes, the Nasdaq Composite (COMPQ) is a market capitalization-weighted index
The S&P is off .27% since the space X ipo and Space X is off 30%. I’d say it has been negligible in terms of its impact on the index.
SpaceX isn’t in the S&P 500 and isn’t eligible for inclusion.
It is on the Nasdaq 100 however. The Nasdaq uses a float adjusted weight as well as a cap weighted system.. Because of the small public share float, its weight weight in the Nasdaq-100 was set at about 1.3%.
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31 analysts follow SpaceX with a high price target of $800 and low of $115. They weren’t all underwriters.
The median is $225.
intercst
I guess that’s a good reason to own the S&P. ^NDX is off 5.5% but I’m guessing GOOG and NVDA might be having a bigger impact
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Yep. So up or down, SpaceX doesn’t individually have anywhere near the influence on the NASDAQ index people attribute to it.
If SpaceX started to profitably mine an asteroid tomorrow, the stock might double, but I don’t think you’d see a big jump in the overall market. (e.g., like 5% up.) Similarly, the market has already discounted the SpaceX bankruptcy.
intercst
Influence is an interesting word. The number of trillion corporations by market cap risk a crash. Influence?
If a tree falls in the woods?
But if the forest burns down?
No, but of the members of the IPO syndicate on who initiated coverage, all had buy recommendations. Those analysts had a median price target (if provided) of $232.
The only analysts on your list with hold or sell ratings were not involved with the IPO. Those analysts had a median price target of $135.
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