SpaceX Stock Just Dropped Below Its Debut Price. Is the Stock a Buy?

Space Exploration Technologies (NASDAQ: SPCX) pulled off the largest IPO in history last month, opening at $150 per share and ending the day at $161, with a market value of $2.1 trillion. The stock has been highly volatile since then, rising to a high of about $225 before eventually declining below its opening price. SpaceX's shares are currently worth $145 apiece. Should investors buy the stock at current levels?

When expectations meet reality

IPOs tend to generate significant enthusiasm because they offer the opportunity to invest in promising companies early. Imagine buying shares of Amazon (NASDAQ: AMZN) on the day it went public. Even a relatively modest investment in the e-commerce leader then would be worth a small fortune today. Not every company is Amazon, but SpaceX could deliver similar -- or even better -- returns over the long run, provided the corporation's ambitious vision materializes.

Image source: the Motley Fool.

SpaceX is looking to revolutionize and commoditize space travel through its pioneering work with reusable rockets. The company's next-gen rocket, Starship, is fully reusable and has a much greater capacity than its previous ones. This could unlock several opportunities for SpaceX, including space tourism, as Starship significantly reduces the cost of space travel. SpaceX could also substantially improve its most important business, Starlink, which offers internet connectivity through Low Earth Orbit satellites. Starlink was SpaceX's only profitable segment last year, and the company recently requested regulatory approval to send 100,000 of its Gen3 Starlink satellites into orbit.

Considering the company has just over 10,000 satellites in orbit right now -- and the fact that it is looking to operate these new satellites in very low Earth orbit -- this could improve Starlink's internet speeds and potentially allow it to target customers outside of those in rural and other underserved areas it has focused on so far. Clearly, there is a large opportunity ahead for SpaceX, and we haven't even mentioned the company's artificial intelligence opportunity, which it sees as its largest addressable market across its entire business.

Despite all that, there are reasons to be skeptical of SpaceX's prospects. For one, SpaceX is spending significant sums to make its ambitions a reality. That means the company may not turn a profit anytime soon, which is fine, provided it can pull off its vision. But there will be significant challenges, including growing competition in the space industry and risks to the company's ability to innovate, execute, and remain the leading company in the space sector.

Factors such as regulatory delays related to Starship -- which is central to its future -- and slower-than-expected development timelines may sink the stock. Further, SpaceX will also face increased competition in its Starlink business. These are just some of the problems it may encounter. In the meantime, SpaceX is the only $2 trillion (or more) company that isn't consistently profitable, which suggests its valuation already reflects significant success. For all those reasons, the stock still isn't a buy, even below its opening price. Perhaps once it falls much further, its shares will become attractive.

Prosper Junior Bakiny has positions in Amazon. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.