Shares of Space Exploration Technologies (NASDAQ: SPCX) jumped significantly in their first days of trading. As of this writing, SpaceX stock is trading at $185 per share, a 23% increase from the opening price of $150 on its IPO day.
We’ve already seen some blockbuster IPOs slide from their initial euphoria. Artificial intelligence stock Cerebras is down about 20% over the past month after an initial surge.
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But SpaceX has seen some volatility since its IPO, too, and more could be on the way.
Here’s why current and prospective SpaceX shareholders should expect share price fluctuations over the next few months.
More SpaceX shares will hit the market after lockup periods end
Seasoned investors will already know this, but those newer to investing may not be aware of the lockup periods that come with IPOs.
When a company goes public, early investors and employees who’ve been granted stock options typically aren’t allowed to sell their shares right away.
SpaceX shareholders and potential investors should be aware that the end of lockup periods can cause price declines — with some declines ranging from 1% to 3%.
SpaceX shares have a staggered schedule for their lockup periods:
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20% to 30% of shares will come off their lockup before the first earnings report in July or August.
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An additional 7% of the stock will be available after either 70, 90, 105, 120, or 135 days beyond the IPO date.
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A further 28% of the stock will leave its lockup period after the second-quarter report.
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The rest will be available 180 days after the IPO date.
The traditional lockup period is 180 days. This staggered schedule is unusual.
The release of additional shares over the next few months could be a catalyst for declines in SpaceX’s stock price. As more shares hit the market, supply will increase and help balance demand, potentially causing SpaceX shares to dip.
It’s not guaranteed to happen, of course, and it might not even be a dramatic slide if it does.
Still, SpaceX shareholders and potential investors should be aware of the end of lockup periods and how they can affect a stock’s price.
All stocks are volatile, but recent IPOs are especially so
I recently wrote that you might want to wait about a year to buy SpaceX stock if you’re really interested in it.
That’s because most blockbuster IPOs — the ones with companies that are worth more than $10 billion — gain just 3.5% from the opening price on their IPO day after 12 months. This is true even for the ones that see big gains in the first few weeks.
Still, I don’t think any of the above means that current SpaceX shareholders should sell their stock.
Long-term investors know that buying and holding stocks — for five years or more — is one of the best ways to build wealth. Selling a stock after just weeks or months of owning it doesn’t align with a long-term investment mindset.
To be clear, I also don’t think investors should be buying SpaceX stock right now. Its shares have a trailing price-to-sales (P/S) ratio of 125, which is far higher than the average P/S ratio of 8 for the tech sector.
In addition to the lockup periods causing volatility, it’s likely shareholders could react strongly to SpaceX’s quarterly earnings reports.
Investors get only a snapshot of the company’s financial picture from an S-1 filing before it goes public. It’s good information, but it’s incomplete.
The next few quarterly earnings reports will tell investors a lot about what’s happening with SpaceX. And if investors don’t like what they see, or the company isn’t improving on certain metrics as quickly as expected, then some investors might sell their shares.
What’s clear right now is that, between lockup periods ending and investors getting their hands on the first earnings reports, the next few months will certainly be very interesting to watch.
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Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
1 Catalyst That Could Cause SpaceX Stock to Drop. Should Investors Sell? was originally published by The Motley Fool
Disclaimer : This story is auto aggregated by a computer programme and has not been created or edited by DOWNTHENEWS. Publisher: finance.yahoo.com
