On Wednesday, Gary Black, managing director of The Future Fund LLC, expressed concerns regarding SpaceX’s recent trading behavior. He noted that the company’s stock, dubbed SPCX, had been exhibiting characteristics of a “meme stock” rather than being driven by its fundamental metrics such as revenue, cash flow, and overall valuation. Black indicated that this trend might be coming to an end now that options trading has become available, allowing investors new avenues to bet against the stock.
In his comments, Black highlighted that the stock’s impressive 50% rally from its initial public offering (IPO) price of $135 reflected a market with limited options for selling or shorting shares. He pointed out that IPO buyers were subjected to lockup limits, making it difficult for them to sell their shares, and that borrowable stock for short-selling was quite scarce. Additionally, options for placing bearish bets were only made available recently.
Black urged investors to reassess SpaceX’s market performance as the lockup period approaches its expiration in August. This change may facilitate easier bearish trading strategies. His skepticism about SpaceX’s IPO valuation has been consistent; just last month, he noted that he would be more interested in the stock after a significant price drop, highlighting concerns over its near $1.75 trillion valuation.
In a response to rising fears regarding lockup expiration, Steve Grasso, CEO of Grasso Global, sought to clarify the dynamics at play. He explained that another 10% of insider shares could only be released early if the stock prices reached certain benchmarks, specifically if it closed at or above $175.50 for a set number of consecutive trading days.
On the trading front, SpaceX experienced its first decline since its public debut, with shares falling following the launch of options trading. The shift occurred as nearly 1.8 million contracts were traded, significantly surpassing the previous record set by Meta Platforms in 2012. This decline led to a drop in SpaceX’s market value from $2.66 trillion to $2.57 trillion, while Morningstar analysts have estimated the fair value of the company to be much lower at around $780 billion, less than one-third of the current market value.
This situation highlights the ongoing volatility in the stock market, particularly for high-profile IPOs like SpaceX, and serves as a cautionary tale for investors navigating the complexities of modern trading dynamics. The unfolding situation urges a careful consideration of investment strategies, especially as external pressures such as market sentiment and trading mechanics come into play.
