How’s SpaceX doing on its second trading day? The most expert experts on stocks in the United States work at Morningstar. They value the company at $63/share and say that if everything went perfect, it could be worth $154. From last week:
We value SpaceX SPCX at $63 per share, a 53% discount to the upcoming IPO’s offering price. Our valuation is the result of mathematics more than skepticism. With such a wide range of possible outcomes for the company’s financial future, we created forecasts and valuations for three scenarios and probability-weighted them.
Even at $63 per share, we give SpaceX a lot of benefit of the doubt in two of the three scenarios, in which we assume the company can achieve a rapidly reusable Starship rocket enabling multiple launches per week and successfully commercialize data centers in space. Neither of these engineering problems has been solved, and we don’t expect them to be until at least 2028.
In our most optimistic “moonshot” scenario, the company would be worth $1.97 trillion, or $154 a share. That’s 14% above the offering price and a level the shares might even reach in the short term after their public launch, given widespread investor enthusiasm about SpaceX, artificial intelligence infrastructure, and the IPO. However, we assign this scenario, in which both Starship is reusable and scaled orbital data centers are highly successful, a 7% chance of happening, which is one reason our final fair value estimate of $63 is much lower than $154.
We could try to figure out how accurate Morningstar was with Tesla when Tesla was the same size ($19 billion/year in revenue) as SpaceX is now. That takes us back to 2018. Tesla stock was at $20/share vs. $400 now (adjusted for 15:1 in splits, but not for Bidenflation). ChatGPT:
Morningstar was not recommending Tesla as a buy in 2018. In ordinary buy/hold/sell language, their view was closer to sell/avoid for much of the year, or at least don’t buy at the market price. … Morningstar’s 2018 stance was “don’t buy”; in buy/hold/sell terms, it was closer to “sell” than “hold,” especially around the August 2018 $420 buyout episode.
(Keep in mind that $420 pre-splits was a $28/share offer in terms of today’s shares.)
Democrats such as Bernie Sanders who are envious that Elon Musk is a trillionaire now have a Science-based way to catch up. They say that expert advice should be followed without question, e.g., if an expert-crafted response to a virus killing Americans at a median age of 82 is to close schools for 8-year-olds for 18 months. A leveraged bet that SpaceX stock will fall to the Morningstar-estimated value could make at least $billions if not $trillions in profit.
Loosely related…
Wow! Now I have two trusted investment advisors! ChatGPT and Morningstar.
Tesla’s stock price seems disconnected from Tesla’s business performance. At 15x gross revenue and 250x net earnings, its wildly overpriced by conventional valuations. And yet the party keeps going?