SpaceX (SPCX) Stock Has Plunged 45% From Its Post-IPO High, and Cathie Wood Recently Bought $51 Million of It

If you like to keep up with famous investors, you probably know Cathie Wood, the founder, CEO, and chief investment officer of Ark Invest, known for investing in companies with disruptive and innovative technologies. Many investors pay attention when she makes big buys or sales, and she recently raised a lot of eyebrows when she bought $51 million worth of Elon Musk's Space Exploration Technologies (NASDAQ: SPCX).

The reason many were surprised is that Space Exploration Technologies, commonly known as SpaceX, is arguably overpriced.

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Why would Cathie Wood invest in SpaceX?

Cathie Wood is only human, so maybe she's investing in SpaceX due to FOMO -- the fear of missing out. (That's why many of us make certain investments, sadly.) Her company has actually been investing in SpaceX for a long time, though -- since before it even went public last month.

Another reason could be the company's leadership in space launches and satellite communications. Or maybe Wood and her team are excited about SpaceX's ventures into other realms, such as artificial intelligence compute satellites.

Wood may also think that the stock has now fallen so much that it's unlikely to fall much more.

Why you might not want to invest in SpaceX

The biggest knock against SpaceX's stock, in my opinion, is its valuation. What's its price-to-earnings ratio? Well, it doesn't have one yet, since it hasn't delivered earnings. In such cases, one might look instead at the price-to-sales ratio. It was 65.5 as of mid-July. In case you don't know, that's quite steep. Consider that Apple's (NASDAQ: AAPL) price-to-sales ratio was recently 11, while Amazon's (NASDAQ: AMZN) was 3.7. And those companies have earnings!

Plenty of people have been investing in SpaceX, so they are probably reasoning to themselves that the company will eventually grow into its valuation. It certainly could. But that could take years -- in which you might have been invested in another stock. And SpaceX is priced for perfection. Once it shows signs of trouble, investors might flee, sending shares down. In fact, it recently postponed its Starship test flight due to engine issues, and the stock sank more than 5%.

If you like investing with a margin of safety, look elsewhere. If you can stomach a lot of risk and really like what you see in SpaceX, consider investing modestly, perhaps starting with a small position and waiting for a better price before investing more. Indeed, the stock has fallen since its IPO pop and was recently trading below its IPO price. (Specifically, it closed at $124 on July 17, 8% below the IPO price of $135 and 45% below its high of $225.)

Cathie Wood may not expect the stock to keep falling, but I can certainly see it doing so in the near term. After all, despite that 45% drop, the company was recently valued at a whopping $1.6 trillion -- without even having earnings.

Meanwhile, the company's first quarterly earnings report is expected to be released around early August. Whatever it shows might send the stock up or down sharply, so keep that in mind. Remember, too, that there are plenty of other promising tech stocks out there.

Selena Maranjian has positions in Amazon and Apple. The Motley Fool has positions in and recommends Amazon and Apple. The Motley Fool has a disclosure policy.