History Says SpaceX Stock Will Do This in the Months After Its IPO

The biggest initial public offering (IPO) is now history. The blockbuster public debut of Space Exploration Technologies (NASDAQ: SPCX) earlier this month more than doubled the previous record, raising $85.7 billion.

The stock has already been on quite a ride. Where does it go from here? Here's what history suggests the next year will look like.

How the biggest IPOs in history have performed

Let's start by looking closely at the biggest IPOs in history before SpaceX. The data is somewhat mixed, but the first year is rocky for three of the five.

Hyped IPOs have fared even worse

If, instead, we look at not just the largest stocks, but some of the most hyped in recent memory -- stocks that had a strong narrative driving hefty valuations at launch -- we see an even bleaker picture:

What academic research says about IPO returns

Jay Ritter of the University of Florida has tracked IPOs for decades, and his data set is considered the gold standard. His foundational 1991 paper is still relevant today. It showed that IPOs reliably pop on day one, then underperform comparable companies during the following one to five years on average.

However, if you look closely, that underperformance doesn't hold for big companies. For larger businesses, he found little difference.

That's something to keep in mind, but I think things have shifted somewhat significantly over time. A more recent Truist study of the past 30 major IPOs found that returns skew negative at both the six-month and 12-month marks, with the average for each sitting around -9%.

Here's why: Companies go public at very different points in their lifecycles today than they did 25 years ago. There is so much private capital available from VC firms and private equity that companies today don't need to lean on the public market until they're much more mature.

And that often means the serious, exponential growth public investors are hoping for has already happened -- or at least a much larger share of it -- while the business was still privately held.

Why SpaceX's best growth may already be behind it

I think that's more or less the situation here. SpaceX was valued at roughly $500 billion just one year ago (that includes the $113 billion valuation of xAi, which was a separate entity at the time). It was less than a 10th of that a decade prior.

Its current $2.2 trillion valuation has already baked in an enormous amount of revenue growth. So, even if the company delivers strong double-digit percentage returns for years and manages to turn a profit, it's got plenty of road to cover before its earned its valuation.

Image source: Getty Images.

And more immediately, you have a pretty major issue to contend with: dilution. Despite the dollar value of the SpaceX IPO, the company only sold an unusually small portion of itself to public investors -- about 4%.

During the next year, the shares of company insiders and early investors will be unlocked and available for sale. These will outnumber the current available shares many times over. The first unlock alone, which comes in August, will double the supply of shares available for sale.

Of course, there's no way to know how many will actually be sold, but even a small portion of the total during the next year would be a serious drag on the stock price.

Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms, Snowflake, and Visa. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.