SpaceX Stock Reaches All-Time Low. Here's the Case for Buying Before Aug. 4 Earnings.

Key Points

• SpaceX’s stock price has struggled following a successful IPO.

• The company is still positioned to execute on many key growth initiatives.

Space Exploration Technologies(NASDAQ: SPCX) recently completed one of the most successful IPOs in history.

When the company’s IPO was announced, analysts expected SpaceX to raise between $50 billion and $75 billion. As the space stock’s IPO drew closer, the company confirmed that it would target the high end of that range: $75 billion.

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SpaceX’s public debut, of course, was a wild success. Underwriters were able to sell so much stock at the intended price that so-called “greenshoe options” were triggered, allowing them to sell even more SpaceX stock to the public. This brought SpaceX’s total IPO proceeds to $87.5 billion.

And still the company wasn’t done raising money. Shortly after its IPO, SpaceX sold $25 billion in bonds to investors after initially targeting a $20 billion raise. Most of the debt won’t have to be paid back anytime soon, with maturity dates ranging from 2031 to 2056.

Despite the massive cash haul, investors turned sour on the company in the weeks following its public debut. SpaceX stock is now more than 10% below its original IPO price as of this writing. Buying SpaceX stock is much easier to justify today, however, than it was just a few weeks ago.

Here’s why investors shouldn’t give up on SpaceX stock

I wasn’t a big fan of SpaceX at the original IPO price. My reasoning was simple: Even assuming SpaceX delivers on all its major growth initiatives, it was still hard to justify a $1.77 trillion valuation. Analysts at Morningstar summed up the situation succinctly.

“Even giving SpaceX the benefit of the doubt in several key forecasts, only the most optimistic ‘moonshot’ scenario approaches the IPO offering price,” the firm concluded. “We think the company has been significantly overvalued and investors will have opportunities to buy the stock at more attractive levels after the IPO.”

Image source: Getty Images.

Now, with a market cap closer to $1.5 trillion, the math gets a bit easier to justify. To be sure, a huge amount of value is still being placed on speculative growth pursuits like orbital data centers — space infrastructure that many experts worry will never be physically or economically feasible.

But here’s the thing: SpaceX’s sinking stock price has no impact on the financing the company has already achieved. SpaceX raised well over $100 billion in IPO proceeds and its follow-on bond offering. The company’s $60 billion acquisition of artificial intelligence coding company Cursor is an all-stock deal, meaning SpaceX will retain all of its recent cash financing.

SpaceX remains a money-losing business. And it has already announced $350 billion in planned capital expenditures through 2030. Some Wall Street firms expect total capital expenditures to be even higher.

In short, SpaceX will very likely need to raise more money to achieve its ultimate growth ambitions. S&P Global predicts SpaceX will spend $68 billion in capital expenditures over the next 12 months. And while the firm also sees SpaceX achieving positive free cash flows by 2029, more financing will be needed in the interim.

Before further financing is needed, SpaceX will need to do its best to convince the market that it is making real-world traction on its growth ambitions. That process began with a recent successful test flight of the company’s Starship megarocket. Starship is critical to SpaceX’s growth ambitions. Without it, orbital data centers, a human base on the moon, and a scaled-up Starlink network would be much more costly and time-consuming. The successful test launch cleared the way for even bigger tests.

“We believe Flight 13 could lead to a Starship catch attempt at the pad on its next flight test, which is one of the biggest milestones to achieve full reusability and a high launch cadence,” notes one Wall Street analyst, who called the latest test flight “near perfection.” Yet even after the most recent Starship test launch, SpaceX’s stock continued to slide.

SpaceX has everything it needs to start converting its ambitious growth vision into reality — at least for a year or two. That’s the reality even if the share price continues to sink. If you’re still a believer in SpaceX as a business, buying into the company at a lower valuation — plus nearly the same cash reserves and a more validated Starship platform — seems like a reasonable choice. Just make sure you’re prepared for continued volatility.

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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.