SpaceX Price Drop: Can the Elon Musk IPO Set You Up for Life?

Well, that didn't take long.

On Tuesday, June 23, its sixth full day of trading, the stock of Space Exploration Technologies Corp. (NASDAQ: SPCX), or SpaceX, briefly dipped to an all-time low of $147.55/share, below its debut price of $150/share. Since then, it hasn't closed above $157/share.

But is this price drop actually a buying opportunity in disguise? Here's what investors should know about SpaceX's prospects moving forward.

Image source: Getty Images.

Par for the course

SpaceX's shares shot up to an intraday high of $176.52/share just after it began trading on Friday, June 12. Many observers thought that might be the high-water mark for the stock.

But SpaceX surprised everyone over the following two days as its stock price rocketed up to close at $211.39/share on Tuesday. This briefly put its market capitalization at $2.6 trillion, surpassing Amazon to become the fifth-largest company in the world. Analysts began to wonder if the classic trajectory of a hot IPO -- a brief Day 1 share price spike followed by a long, gradual decline -- didn't apply to SpaceX.

That dream was short-lived. The decline began the very next trading day, with shares eventually closing below $160/share on June 22, where they've mostly stayed since.

So, is now a good time to buy shares?

SpaceX stock has a long road ahead of it

There are two compelling reasons to stay away from SpaceX shares right now: dilution and lockup expiration.

Dilution comes from additional share issuances. SpaceX's recent agreement to acquire artificial intelligence developer Anysphere in a $60 billion all-stock deal already requires the issuance of about 400 million new shares. An additional preexisting deal for wireless spectrum will require the issuance of $11.1 billion in new shares in 2027. And various executive bonuses, stock options, settlements, and other awards totaling about $150 billion in new shares could be issued under certain conditions as well. These issuances will likely drive the share price lower.

Meanwhile, a healthy chunk of SpaceX's existing shares are currently on "lockup." Those shares will begin unlocking two trading days after SpaceX's Q2 earnings report, which is likely to occur in late July. Additional shares unlock throughout the year until the big 180-day lockup period expiration (for employees and most pre-IPO investors) on Dec. 8. Elon Musk's shares won't unlock until June 2027.

Image source: Getty Images.

Given widespread concerns about the company's sky-high valuation, there will be strong incentives for shareholders to sell their shares as soon as their lockups expire, which would put more near-term downward pressure on the stock.

In other words, if you want to buy and hold SpaceX shares for life, waiting at least until Dec. 9, after all those new shares have flooded the market, is likely to get you a better price than buying now. And waiting until 2027, when all shares are unlocked, and we'll have a year of quarterly numbers to help us evaluate the stock price, is probably an even smarter move.

John Bromels has positions in Amazon. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.