Wall Street Thinks SpaceX Is a Buy. Here Are 2 Reasons I'm Not So Sure.

I love Space Exploration Technologies (NASDAQ: SPCX) as a business. The company has already proven an exceptional ability to pioneer new markets, such as low Earth orbit satellite internet and cheap, reusable rockets. Few companies in history have accelerated space travel and space-based ventures as quickly as SpaceX.

As an investment opportunity, however, I have some concerns.

Wall Street seemingly disagrees with me. More than 25 analysts currently have a buy rating on the stock, with a consensus 12-month price target of $232. That implies more than 50% near-term upside potential. Several analysts are expecting more than 100% upside over the coming year, with one expert believing shares should be worth closer to $800 -- a massive premium to today's valuation of around $150.

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To be clear, not every Wall Street analyst is excited about SpaceX as an investment opportunity. Two analysts currently have a sell rating on shares, with five others rating the stock a hold. These more cautionary takes, however, are clearly in the minority.

Why am I still cautious about investing in SpaceX despite my love for the company's business model? There are two risks in particular that I'm worried about.

1. Too much growth is priced in

SpaceX is a difficult business to value. Nearly all of its growth lies ahead, and the company's wide and diverse operating segments require assumptions that span a variety of end markets and opportunities.

When Morningstar attempted to model the company, it found that even optimistic assumptions across all of the company's business segments still don't justify the current stock price.

"Only the most optimistic Moonshot scenario, which requires a rapidly reusable Starship and commercially competitive orbital data centers, approaches the IPO price," the research firm concludes. "The IPO price implies the Moonshot scenario is highly likely, but we think the outlook is very uncertain."

Importantly, this is an analysis run by just one company. But the fact that Morningstar found it difficult to justify the IPO valuation, even factoring in success across the board, is concerning.

2. Access to capital will be critical

If SpaceX can execute on all its growth initiatives, it will have access to substantial capital from outside investors. Currently, SpaceX is not profitable. And while I wouldn't be surprised to see quarterly profits fluctuate due to rising margins and top-line growth in its Starlink internet service, capital expenditures will be so heavy in the coming years that free cash flow will likely be sharply negative this decade.

Scaling its AI business alone will take up hundreds of billions of dollars this decade. But other segments will also be hungry for more investment. SpaceX's new spaceport in Louisiana, for example, is forecast to cost roughly $100 billion.

For now, SpaceX has ample access to capital. But if that ever changes, all its capital-intensive growth opportunities could come into question. If SpaceX starts generating plenty of free cash flow soon, this risk will be largely mitigated. But for now, SpaceX's future relies not only on execution but also on the will of the markets.

Ryan Vanzo 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.