If I Could Tell All Investors 1 Thing About the SpaceX IPO, It's This

Space Exploration Technologies (NASDAQ: SPCX), better known as SpaceX, went public last month to much fanfare. It instantly made history as the largest initial public offering (IPO) ever, reaching a $2 trillion valuation on its first day of trading.

All the hype it's received, however, has made it more challenging for investors to decide whether to buy in. Some analysts believe the stock could eventually surpass Nvidia in valuation. Others are more skeptical, given that SpaceX is already trading at extremely optimistic levels.

With SpaceX joining the Nasdaq-100 this week, it will be even easier for investors to gain exposure to the stock through ETFs that track the index. If you're thinking of owning SpaceX, however, there's one piece of advice I'd offer to all investors: make sure you're buying it for the right reasons.

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Your timeline can make or break your portfolio

There are two main reasons an investor may want to buy SpaceX stock. Either they view it as a solid long-term investment with significant growth potential, or they're hoping that the hype surrounding the stock can make them rich overnight. Investors with the latter mindset are almost certain to be disappointed.

Short-term investing is incredibly risky, especially with a stock like SpaceX that's prone to volatility. Despite popping on its first trading day, for example, the stock has fallen by nearly 20% since June 16, as of this writing. If your timing is even slightly off, short-term investing can be costly.

Long-term investing is a far safer strategy, but there are still some caveats. For a stock to succeed over several years, it needs to have solid fundamentals, such as:

• Healthy finances and a path to profitability.
• A strong competitive advantage.
• An experienced and capable leadership team.
• A proven and sustainable business model.

Hype can only go so far, so before investing in any stock, it's important to understand a company's core business to decide whether it's positioned for long-term growth.

As for SpaceX, experts are divided on just how strong the company's fundamentals are, so there's an element of risk even for long-term investors. This doesn't necessarily mean it won't thrive over time. But foundations beat hype every time, so it's crucial for investors to consider why they're buying before they invest.

Katie Brockman 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.