It has been a strong month for Space Exploration Technologies (NASDAQ: SPCX). The SpaceX share price has gone up by 19% over that period. That is the sort of return I would be happy with for any share I owned.
I do not currently own SpaceX stock though. But even after the recent price surge still, it is still 7% cheaper than when it listed a few months ago. It is 26% below the high point it hit in June.
So could the recent strong price momentum present me with an opportunity to buy the share at a much cheaper price than before, while it has the wind in its sails?
This price volatility tells its own story
For a share to grow 19% in a month may be impressive, but it is part of a wider pattern of significant volatility in the SpaceX share price during its short life to date as a listed company.
That sort of volatility might be more expectable if this was a small company with limited liquidity in its shares. But, with a market capitalisation of over $2trn, that is clearly not the case for SpaceX.
Nor is this a story about a compelling vision of the future pushing a share relentlessly upwards: SpaceX has been up, down and all around in just a few months.
So what is going on? One explanation is that short-term traders are contributing to the volatility by trying to move in and out of SpaceX stock and potentially profit from the price volatility.
But I think another aspect – perhaps the key one – is that the market is genuinely conflicted about what SpaceX is really worth.
Massive potential, but lots of unknowns
Now, that is hardly a challenge specific to SpaceX stock. Indeed, different investors having a variety of views about what any given share is really worth is what makes the stock market dynamic.
With SpaceX though, I reckon that is an unusually large challenge. On one hand, the company has so much potential. Its ambition is enormous. Even the markets it currently focuses on, such as wifi provision, are huge – and set to grow in years to come.
SpaceX’s proprietary technology gives it pricing power. It has been growing revenue at a very high pace.
So where is the challenge? It sounds simple but is in fact complex: assessing how well SpaceX will be able to navigate risks such as growing competition, regulatory risk, and marrying its technical capabilities to its huge ambition.
I’m out… for now
Where does that leave me now? In time, the current SpaceX share price may yet come to be seen in retrospect as a huge bargain. However, as the lossmaking company continues to burn cash and foresees huge capital expenditure, it could be that the business does not justify even the current share price.
I do not think those risks are properly priced in at the moment. So for now, I will stay on the sidelines and not buy any SpaceX stock for my portfolio.
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Christopher Ruane does not hold any positions in the companies mentioned.
