Should Everyday Investors Add SpaceX to a Portfolio That Already Includes Consumer Stocks?

Space Exploration Technologies (NASDAQ: SPCX), or SpaceX, has become a tempting addition to one's portfolio. Under the leadership of Elon Musk, Starlink has become a tremendous success, dominating private launches into space and becoming a key contractor for NASA.

Despite such attributes, consumer stock investors have numerous successful stocks in this sector to choose from. Knowing this, should they add to their SpaceX positions or stick with consumer discretionary stocks?

Image source: Getty Images.

Consumer stock growth

Even before SpaceX launched its IPO, investors had many solid consumer stocks to choose from, and many of these are among the most successful stocks in history.

As with SpaceX, the success stories in the consumer sector were those that fundamentally changed an industry. Perhaps the most prominent standout is Amazon, which has risen by almost 242,000% since its IPO in 1997. Amazon succeeded by pioneering e-commerce and, later, cloud computing.

This is also true of Netflix, which is up by around 61,000% since its 2004 IPO. The company single-handedly ended the video rental industry and inspired cord-cutting as consumers traded cable TV subscriptions for streaming services.

In some cases, the growth occurred without direct involvement of the technology industry. TJX Companies is up 45,000% since 1990. Also, multinational retail giants like Walmart and Home Depot drove massive growth by launching IPOs early in their histories.

Admittedly, many of those stocks are outliers in terms of performance. Nonetheless, new companies (besides SpaceX) continue to emerge and grow to the point that they launch IPOs of their own. Knowing that, the consumer success stories should continue.

Putting SpaceX into perspective

Despite tumbling over the last week, SpaceX stock continues to trade above its $135-per-share IPO price. SpaceX has also benefited from revenue projections, such as one Goldman Sachs forecast of a 100-fold revenue gain by 2030.

However, Goldman's projection is not a guarantee, and the premium investors have to pay for such growth is likely to deter some investors, especially with its 110 price-to-sales (P/S) ratio. In comparison, the average sales multiple for the S&P 500 (SNPINDEX: ^GSPC) is around 3.6, and even a highflier like Micron currently sells at just 20 times sales.

Moreover, many of the aforementioned stocks launched their IPOs early in their histories, most often when their market caps were below $1 billion. That early start is what made their massive growth over time possible.

Unfortunately, this is not the case with SpaceX. SpaceX's market cap is already above $2.1 trillion, making it less likely that SpaceX will make you a millionaire.

Currently, after Amazon's aforementioned 242,000% gain, its market cap is around $2.5 trillion, just 18% higher than SpaceX's.

Furthermore, even after 61,000% gains, Netflix's market cap is $308 billion, roughly one-seventh of SpaceX's. TJX is about one-twelfth the size of SpaceX. Amid such gains, investors may question whether buying SpaceX is a prudent choice when compared with consumer stocks.

Should you invest in SpaceX or other consumer stocks?

Given the performances of many consumer stocks, investors are likely best off choosing consumer stocks over SpaceX.

SpaceX has shown many of the characteristics that made some of the more prominent consumer stocks successful. Under Musk's leadership, it appears poised for rapid growth.

Unfortunately, its first $2 trillion in growth occurred before the stock went public, robbing investors of the chance to buy SpaceX early and earn outsize gains comparable to those of early Amazon, Netflix, or TJX investors.

Although investors have to rely on future growth to earn returns, the 110 P/S ratio has priced much of that growth into the stock. That probably means SpaceX investors will lose out as multiples compress. Worse, even if the sales multiples fall to where Micron trades in the low 20s, current investors could be left holding the bag as the stock takes a hit.

Thus, even if investors choose slower-growing consumer stocks over SpaceX, the consumer stocks are almost certainly safer and could ultimately yield higher returns over time.

Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Goldman Sachs Group, Home Depot, Micron Technology, Netflix, TJX Companies, and Walmart. The Motley Fool has a disclosure policy.