SpaceX's stock has experienced a significant dip due to a limited float, upcoming share unlocks, and initial overvaluation. Despite this, forced buying from index funds supports the price temporarily. This article explores the reasons behind the dip, potential price targets, and highlights three quality space stocks—Redwire, AS Space Mobile, and Rocket Lab—that present buying opportunities during this market correction.
SpaceX and other space-related stocks have been experiencing a notable decline since SpaceX's IPO. This article breaks down the reasons behind SpaceX's stock drop, forecasts its potential price movements, and identifies three quality space stocks to consider buying during this dip.
SpaceX's stock has been falling sharply since its IPO. Several factors contribute to this trend:
Only about 4 to 5% of SpaceX shares are currently available for trading, with the rest locked up. This microscopic float causes the stock to behave like a small-cap stock despite SpaceX's massive valuation (around $2 trillion). The limited shares in circulation combined with high retail and media attention have led to volatile price movements.
A large number of insider shares are set to be unlocked soon, which will increase the supply of shares dramatically. This creates a tug-of-war between forced buying by index funds and insider selling, putting downward pressure on the stock price.
SpaceX IPOed at $135 per share on June 12th, quickly rising to an all-time high of around $225 by June 16th. This rapid increase was driven more by the low available shares and high demand than by fundamentals, resulting in a valuation that factored in many years of potential upside prematurely.
When a stock is added to major indexes, funds tracking those indexes must buy the stock regardless of price. SpaceX is being added to several indexes on a staggered schedule, including the total market funds (June 19), Russell 1000 (June 26), MSCI funds (June 29), and the NASDAQ 100 (July 6). This will result in approximately $22 to $30 billion of forced buying funneling into the tiny float, supporting the stock price temporarily.
Following SpaceX's first earnings report expected in early to mid-August, about 20% of locked shares will become eligible for sale. Additional unlocks will occur in late August and early to mid-September, potentially increasing the tradable float by nearly 900%. While not all insiders will sell, the increased supply is likely to exert significant downward pressure on the stock price.
This pattern is reminiscent of Facebook's IPO in 2012, where the stock price halved after the first unlock despite strong business fundamentals. Many early investors sold to lock in profits, but those who held on saw substantial gains over the following decade.
Currently, SpaceX is trading at a price that is too expensive, factoring in too much future potential. The best buying opportunities will likely arise after the unlock periods when the stock stabilizes.
Key price levels to watch:
In a severe market downturn, SpaceX could be sold off heavily, but long-term index fund buying should provide some price support.
The SpaceX IPO and subsequent dip have affected many space stocks. However, this correction presents buying opportunities in quality companies poised for long-term growth.
SpaceX's stock is undergoing a typical post-IPO correction exacerbated by a tiny float and upcoming share unlocks. While the stock may fall significantly in the short term, it remains a strong company with long-term potential.
Meanwhile, other space stocks like Redwire, AS Space Mobile, and Rocket Lab offer attractive buying opportunities during this dip, supported by solid fundamentals and growth prospects.
Investors should conduct their own due diligence and consider these levels and catalysts when evaluating entry points in the space sector.
Modular Medical is a NASDAQ-listed company founded by the inventor of the widely used T-Slim insulin pump. The company recently received FDA clearance for a new insulin pump called Pivot, expected to launch commercially this fall.
Modular Medical offers an innovative approach to a persistent problem in diabetes care by simplifying insulin pump technology and targeting underserved patients. While risks remain, it is a company worth monitoring for those interested in diabetes technology and small-cap medical devices.
Investors should always perform their own research and consider risks before investing in any stocks discussed.
