r/valueinvesting
$SPCX Overvalued Argument is MISUNDERSTOOD and FLAWED!
The author argues SpaceX's high valuation reflects future TAM and market expectations, though they personally avoid investing in it.
- Market valuations are forward-looking and reflect collective expectations of future TAM and growth.
- Comparing SpaceX's valuation to mature tech giants is a fallacy due to different industry dynamics.
- Trading at nearly 100x TTM revenue is extremely expensive by traditional valuation metrics.
- The author personally avoids the IPO and refuses to invest in the direct stock.
Okay everyone seems to be hating hard on SpaceX, specially their valuation. Everywhere I go I find people commenting on \~$20B revenue with \~$2T market cap is crazy, etc, etc. I do agree that trading almost 100x TTM revenue is little cookie, but I think most people fail to understand the relative valuation case.
The bet with SpaceX ($SPCX) isn't what the company is doing today (the government contracts, xAI, Starlink, etc). It's about the potential TAM (Total Addressable Market). I'm not making a case for investing in $SPCX by any means. I have stayed away from the IPO and will not be touching it. My exposure to it was $IRDM which I bought end of last year at $17 and now it's at $50 something (not even tracking it anymore lol).
The goal of this post is to help you understand that the reason their valuations floats so high and why you can't compare them to $AMZN or $GOOGL or $META. That's like saying "Some AI stocks trade at 40-50x sales while some retail companies trade at only 2-7x sales. So AI stocks are bad." See that line of thinking inherently has a fallacy. Markets are a forward-looking mechanism. This means enough people collectively decided that they believe the opportunity (margins, TAM, growth, etc) going forward will be much different than represented in current valuations. It's all about speculation on the future, and if enough people believe it, the price action will reflect it.
So how does this tie into $SPCX?
Well now that you understand valuations aren't just numbers in the void, but always relative and indicative of a collective opinion of enough market participants, we can examine the space industry. What is the current TAM of the space industry? What rate is it expected to grow over the next year? 5 years? 10 years?? What are the opportunities and growth drivers that are/will be available to the industry as a whole? What are the risks? What would it mean if the industry as a whole succeeds at execution? Finally, am I and other market participants agree on the risk/reward on the industry?
Once you answer these questions, you will understand why the valuation for a leader and let's be honest, a monopoly as of now, is so high relative to their current annual sales. You may disagree with the execution, you may disagree with the market on the risk/reward assessment, you may even think that the potential TAM is exaggerated and on the timeline of growth. BUT you have to understand that you CANNOT claim $SPCX is overvalued by comparing it $AMZN or any other company that is not in the industry. That is a flawed argument imo.
I have MANY more thoughts on this, but I wanna open a discussion with this and see what people have to say. Would love any thoughts that people have. Agree? Disagree? Why? let's have a good, open discussion. I'm more than willing to talk and even change my mind if presented with good arguments.