Why This Could Be the Worst Time to Buy SpaceX Stock

What's going on with Space Exploration Technologies (NASDAQ: SPCX) stock? The space stock was the largest initial public offering (IPO) ever when it went public less than a month ago, and instead of the projected $75 billion raised, underwriters were able to use their 15% overallotment because there was so much interest. SpaceX ended up raising $86.7 billion.

But after all of that hyper-interest and an initial run-up, SpaceX stock is now trading below its market open price of $150 as of this writing.

That might seem like an opportune time to buy in if you couldn't get in at the beginning. But now might be the worst time to buy shares. Here's why.

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Why is SpaceX stock falling?

SpaceX hasn't released any new information about its operations since the IPO, so any movement is likely related to investor sentiment or macroeconomic factors. Both of these are likely coming into play.

Some investors who were lucky enough to get IPO shares or bought in the first few days might be pocketing their gains. Given how high the demand for the stock was, it would be a simple move.

However, the tech industry as a whole has been under pressure over the past week, and the S&P 500 and Nasdaq-100 are both roughly flat since the beginning of June. Now, about a month after the IPO, SpaceX is another tech stock that's going to act, more or less, in line with other tech stocks when there's macroeconomic news or volatility.

Why it's the worst time to buy SpaceX

So far, the thesis to wait for now is connected to a hesitant tech market. But there's more, specifically related to SpaceX.

Since it's only been a month since the IPO, the stock is still in what's known as the lockup period. Insiders, who own the 95% or so of the stock that hasn't been released on the market, are restricted from selling for obvious reasons: Releasing such a massive amount of shares at once could create major instability, especially for a stock as hyped-up as SpaceX.

Most lockup periods end 180 days after the IPO, but SpaceX has a staggered lockup period. The first stage ends after the second-quarter earnings release. While that date hasn't been announced yet, it's likely to be in the beginning of August. At that time, 911.5 million shares, or 6.8% of the total, will become eligible for sale by insiders. That's more than is already on the market.

If the stock surpasses the IPO price by 30% for five out of the 10 days post-release, another 455.8 million shares can be sold. In total, that would be 10.2% of the stock, or more than double the 4.1% that's on the markets today.

Not all of the stock will be sold, and the way it looks right now, it's unlikely the 30% threshold will be met. However, if there's high trading activity at that point, it certainly could be.

The more likely scenario is that the stock is driven down by all the new shares. Which means it could get a lot lower than today's price, and investors should wait it out.

Jennifer Saibil 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.