Key Points
One analyst thinks SpaceX’s shares are worth $300 each.
His argument makes sense if you buy into several optimistic assumptions.
But there is significant uncertainty to factor in as well.
Space Exploration Technologies (NASDAQ:SPCX) is getting its mojo back. After dropping to a low of $104.83 per share, the stock has roared back and, as of this writing, is trading at about $173 per share, well above its $150 debut price. But could there be even more upside ahead for the rocket company? Yes, or at least, that's what several Wall Street analysts believe. Let's look into one recent bullish call that sent SpaceX soaring.
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Shooting for the moon
SpaceX's price-to-sales ratio is currently 68.5, and it is trading at 200x forward earnings. That doesn't seem like a cheap stock, at least at first glance. However, these metrics, as useful as they are, do not account for expected growth. And once we factor that in, SpaceX's shares appear cheap, or at least, that's what Adam Jonas, an analyst at Morgan Stanley (NYSE:MS), believes.
According to Jonas, SpaceX is more attractively valued than other trillion-dollar companies such as Amazon (NASDAQ:AMZN), Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL), and Meta Platforms (NASDAQ:META) on some key metrics that account for growth. That's a key part of the analyst's argument, and his calculations led him to assign a $300 price target on the stock while reiterating his "overweight" rating. Jonas' bullish call was one of the catalysts behind SpaceX's shares jumping earlier this week.
Time to buy the stock?
Is SpaceX really worth $300 per share? There is no question that the company's business is outstanding. It is a conglomerate that operates across three major industries: space launch, satellite-based connectivity, and artificial intelligence.
SpaceX is arguably the dominant force in space launch and connectivity, and it is eyeing massive opportunities in the AI industry, where it plans to drive significant innovation. Don't put it past SpaceX: The company has done it before.
It pioneered reusable rockets, which reduced launch costs and enabled it to earn lucrative contracts with various clients, including several U.S. government agencies. SpaceX's long-term plans include further reducing space launch costs through its next-gen rocket, Starship, competing with the dominant companies in the telecom market, and launching AI satellites into space, among others.
As Jonas also pointed out, it is important to look at these not as individual businesses, but as parts of a whole interconnected business. Meanwhile, SpaceX has made significant progress since its IPO. For instance, it recently launched Starship into orbit for the first time in a successful test flight.
It has signed AI compute deals, including one that's worth $1.11 billion per month. Its latest quarterly report was also strong. Revenue grew 92% year over year to $7.8 billion, while the company's net loss came in at $541 million, significantly better than the $1 billion net loss reported in the year-ago period.
These are all signs of an improving business. That said, there are significant risks to consider. Jonas himself identified some, including regulatory delays, slower-than-expected progress with Starship, and stalling AI monetization.
There are always risks, but note that while the interconnected nature of SpaceX's business is indeed a major strength, that only works so long as the company makes progress, particularly with Starship. If progress stalls, that affects the prospects of the other two segments as well.
So, much of SpaceX's value depends on several developments, and if they don't pan out, it harms the entire business.
And when it comes to Starship specifically -- one of the most important ongoing projects -- outcomes could vary widely. The $300 price target seems reasonable given certain assumptions regarding Starship's progress (and several other assumptions across the business). Still, because these are very uncertain, the range of potential outcomes is wide, from very bullish to very bearish.
What should investors do? It depends on each person's tolerance for risk and volatility. But at current levels, I'd stay far away from the stock.
Prosper Junior Bakiny has positions in Alphabet, Amazon, and Meta Platforms. The Motley Fool has positions in and recommends Alphabet, Amazon, and Meta Platforms. The Motley Fool has a disclosure policy.