Key Points
In September, SpaceX successfully launched Starship into orbit for the first time, along with 26 satellites.
The success of Starship is key to unlocking future growth opportunities for SpaceX's business and to help justify the stock's hefty valuation.
Shares of Space Exploration Technologies Corp (NASDAQ:SPCX), which is better known as just SpaceX, have been rallying in recent weeks. Momentum has been picking up, particularly after the company successfully launched its Starship rocket into space. While this was its 14th successful launch, it was a particularly meaningful one for SpaceX, as it was the first one that made it into orbit. Plus, it was carrying 26 Starlink satellites.
For SpaceX, this is a big deal, as it shows off the effectiveness and revenue potential of the rocket. And that helps justify the stock's valuation in the eyes of many investors and analysts.
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Starship will be key for SpaceX to execute on its growth strategy
Sending rockets into space won't be a major catalyst for SpaceX on its own. Instead, it's the ability to send a reusable rocket, such as Starship, with significant payload capacity that can be crucial and lead to substantial revenue growth for the company. Starship can be used for large space projects, and it can send more than 100 metric tonnes into orbit in its reusable configuration.
For bullish SpaceX investors and analysts, this successful launch is an important milestone for the company, as it suggests it is making progress towards meeting its lofty goals. CEO Elon Musk believes that by around the end of the decade, SpaceX could be generating as much as $1 trillion in revenue. As ambitious a target as that may seem, analysts at Citi appear to largely agree with the forecast, projecting that the company will generate that much by 2031.
SpaceX stock is promising, but it's also risky
After initially soaring after its IPO, SpaceX's stock has struggled to get back to those early highs. A big problem with the stock is that its valuation is already north of $2.1 trillion, which is a huge price tag for a business that remains unprofitable and that may not get out of the red anytime soon. It's spending heavily on artificial intelligence and other areas of its operations, which are also going to require substantial cash infusions.
At such a high valuation, a lot of the company's future growth is already priced into its current share price. That makes it difficult for the stock to have much room to rise a whole lot higher, since investors would already expect it to be successful given its valuation. For stocks where there's uncertainty, that's normally reflected in a lower valuation, and that isn't the case with SpaceX.
If, meanwhile, there are issues or hiccups along the way, SpaceX stock could be vulnerable to a steep correction. The Starship launch was great news for the business, but I don't think it's enough of a reason to buy the stock at its current price tag.
David Jagielski, CPA 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.