SpaceX is rapidly growing its revenue.
SpaceX is too large to make a huge impact on returns.
Space Exploration Technologies (NASDAQ: SPCX) had a major IPO in June. The stock started hot, reached around $200 per share, then crashed to $110. However, it has settled back to just above $150 per share, which is ironically right where it started trading on its opening day. This tells me that the market has settled into a normalized valuation for the stock, but does that mean it's a good investment?
A $2,000 investment may not sound like much now, but it could grow substantially depending on whether SpaceX works out. But could it help you retire early? Maybe. But it won't be as quickly as you want.
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For a $2,000 investment to help you retire early, it needs to provide substantial returns, perhaps growing to $200,000 over a longer investment time frame, such as 15 to 20 years. The problem with SpaceX is the size at which it went public. Because it's a $2 trillion company, if the stock were to 10x, it would be worth $200 trillion. For reference, the global stock market is estimated to be worth over $150 trillion when all companies are combined.
There just aren't enough investment dollars to go around to make SpaceX much larger than it already is, so investors need to shift their mindset.
Instead of thinking of SpaceX as a stock that will deliver huge returns, investors need to determine whether SpaceX can beat the S&P 500 moving forward. The S&P 500 averages about a 10% return each year, and beating this is the baseline an individual investor should aim for. Can SpaceX do that? I think so.
A major clue to SpaceX's growth potential is its revenue growth rate. During Q2, it was an impressive 92%. That well eclipses the 10% threshold established above, but SpaceX also has a ton of growth already baked into this stock price, so this growth rate was necessary to uphold expectations.
We'll have to see how SpaceX does over the next few years, but with its involvement in space exploration, artificial intelligence, and satellite internet, I'm confident it can continue to grow its revenue rapidly. These are major growth industries to be in, giving SpaceX a great growth edge.
The biggest holdup with SpaceX stock right now is its profitability. Currently, it isn't profitable, and it may not be for some time. Investors must grapple with this, as it does shift confidence in the investment. But if SpaceX can continue growing its revenue at an above-average pace and become profitable, I don't doubt that SpaceX will beat the market and accelerate your path to retiring, really. However, it may not happen as quickly as you would hope.
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Keithen Drury 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.