SpaceX (SPCX) Stock Is Plunging. Should You Buy the Dip?

Space Exploration Technologies (NASDAQ: SPCX), or SpaceX, made its debut on the stock market through an initial public offering (IPO) on June 12. The Elon Musk-led company saw its shares surge by some 67% between its IPO and a June 16 peak -- but the story has changed. Shares were recently down nearly 20% over the past week, briefly dropping below where they started trading, at $150 per share.

Many times, when a stock drops sharply, there's an opportunity to assess whether the case for investing in the company has gotten stronger, thanks to a more compelling valuation. In this case, with SpaceX, I'd recommend you not bother doing so. Here's why.

Image source: The Motley Fool.

Why avoid SpaceX shares?

The biggest knock against the stock is arguably its valuation. Given that the company is not turning a profit at this point, there's no price-to-earnings ratio to examine. So let's check out the price-to-sales ratio: It's 77 as of June 23! That's nosebleed territory. Consider, for example, that market darling Nvidia currently has a price-to-sales ratio of 20, and Micron Technology, which has soared more than 800% over the past year, has a price-to-sales ratio of 24. Numbers in the 20s are quite high already -- and SpaceX's 77 is far, far higher.

If you're telling yourself that SpaceX will grow into that valuation, you're right -- it might. But it could take years, and it's currently priced for perfection. Once it shows signs of trouble, investors might flee, sending shares down. In other words, there's no margin of safety here.

Here's another issue: dilution. In the company's prospectus, prepared for its stock market debut, management noted, "We plan to access a range of debt and equity financing solutions available to us as a public company to fund future investments in growth and to maintain strong liquidity." In other words, the company is already planning to borrow money, after raising $85.7 billion through its IPO, and perhaps to dilute existing shares by issuing more shares. That's not music to investors' ears.

Indeed, it was recently reported that SpaceX has already raised $25 billion through a debt sale. When companies carry a lot of debt, it can restrict their options, as they are on the hook to repay that debt. Companies with much more debt than assets can end up in trouble, too. (SpaceX recently reported having more than $100 billion in cash.)

Overall, this stock is a no-go for me. There are plenty of exciting growth stocks out there with much more reasonable valuations, and I'm a fan of growth- and income-oriented ETFs, too.

Selena Maranjian has positions in Micron Technology and Nvidia. The Motley Fool has positions in and recommends Micron Technology and Nvidia. The Motley Fool has a disclosure policy.