SpaceX Just Posted Its First Profitable Quarter. Is Now the Time to Buy the Stock?

Space Exploration Technologies (NASDAQ: SPCX) just reached a major milestone: its first profitable quarter as a public company. During the third quarter, SpaceX generated $0.35 in earnings per share. This wasn't a fluke or the result of a one-time event; it produced positive operating income, which was then boosted by various factors to deliver its first profitable quarter.

That's a major step, but does it point toward SpaceX stock being a buy right now? Let's take a look.

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SpaceX had a monster quarter

Just about everywhere you look in SpaceX's Q3 results, you see an incredibly strong business. SpaceX splits its business into three segments: Space, Connectivity, and Super Intelligence (its AI division). Its space division is exactly what you think of when you think of SpaceX: tasks like rocket and satellite launches. This is surprisingly SpaceX's smallest segment by revenue, only producing $1.8 billion compared to Connectivity's $5.2 billion and Super Intelligence's (SI) $7.6 billion during the quarter. Its Space segment was SpaceX's only unprofitable segment (from an operating income standpoint). While SpaceX will continue to pursue its space endeavors, it's not where the biggest opportunity is right now.

Instead, that lies within its connectivity and SI divisions. Connectivity is primarily SpaceX's Starlink internet service, which continues to grow at a strong pace. In Q3, it rose 69% year over year and delivered an impressive 45% operating margin. Those are fantastic numbers for any company, and if SpaceX can continue delivering those kinds of results for a few years, it will help build SpaceX into a solid and sustainable business.

However, SI stole the show. In Q3, its revenue rose from $813 million last year to $7.56 billion -- 830% growth. That's downright incredible and shows how quickly its AI business is growing. It even turned a slight profit -- generating $431 million in operating income. SpaceX sees this as a major opportunity and spent a jaw-dropping $16.4 billion on capital expenditures this quarter in its SI division alone. That's a major bet on its AI capabilities, but if SpaceX sees how large the market opportunity is, then spending big to capture it makes sense.

Overall, investors couldn't have asked for much better of a quarter from SpaceX, but does all of this success translate into the stock being a buy? After all, it's still very highly valued.

SpaceX isn't cheap

This is the first profitable quarter SpaceX has delivered, so using the $0.35 in earnings per share to value the business isn't helpful. Instead, if we multiply it by four to annualize it, we can get a better idea of what this indicates. Following its monster quarter, SpaceX stock spiked to about $160 per share. If it can generate $0.35 in earnings per share per quarter for a full year and the stock price stays flat, that would price the stock at about 114 times earnings -- not a cheap price tag.

With most big tech stocks trading around 30 times earnings, SpaceX will need to 3.6x its earnings to reach a reasonable price tag. So, while it's on the right track, I don't think it's a cheap stock by any means. But does that mean you shouldn't buy it? I don't think so.

SpaceX may be a somewhat polarizing stock, but if you believe in its future, then I think there's enough signals here to warrant buying the stock and holding on to it for the long term. Its AI division has strong potential, and its connectivity division will provide solid growth and cash flows as it expands. Eventually, its space business will take off (pun intended), leading to more growth from that sector as well. I think all of this adds up to a business that is becoming more attractive as an investment, but it still has a lot of work to do before it has a more reasonable valuation.

Keithen Drury 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.