Last week we received a few calls from clients who wanted to get in on the SpaceX Initial Public Offering (IPO) of stock. I explained that I generally did not favor trying to get ahead of the market by buying shares of almost any company IPO for several reasons.
The primary reason I dislike taking the extra risk of committing to buy ahead of the public trading is the fact that one is clearly in the dark in this process. The investment bank divisions who have been contracted by the company have one job—to get all of the shares sold at as high a price as possible. This raises cash for the company itself or perhaps even more importantly, for the selling founder, other employees, and any private equity firms that have bankrolled the operations while the company is still privately held.
As in this particular case of SPCX, rumors abound about the wonderful prospects of the company’s future. But most investors don’t even think about examining the prospectus outlining business details the Securities and Exchange Commission require the lawyers and CPA’s to prepare and disclose, all at tremendous expense. At this stage, my view is that one is looking to buy the proverbial pig in a poke!
Last Friday, the stock price opened at $135 per share as expected. It then shot up to $176 and change before settling down to close at $161.29. If you like roller coaster rides, this kind is for you. On Monday it opened $10 higher and reached a new high of $193. Tuesday saw the price jump to $220 in the first hour of trading, reach $225 but settle down to close at $201.
On Wednesday, the buyers were pretty well satisfied and the price could not attain a new high point. It closed below the price reached on Monday. After failing to reach the former highs, it dropped again. This past Monday’s results were even worse and the closing price was $154.60, just above its low of the day. Within a matter of days or weeks, it is likely one will be able to buy it below the $135 per share offering price.
All this is to own a piece of the genius of Elon Musk. I will admit there have been few of his kind and caliber in the entire history of the United States, but it will be comforting to see if he can grow profits as well as he recovers spent rocket boosters over the next few quarters and years.
Will it become as great a success as Jeff Bezos has had with Amazon? Adjusted for all the stock splits of AMZN, the 1997 IPO price is down to 10 cents. My computer’s rough calculation of its rise to $232.79 on Monday equals a gain of 230,900 percent in 29 years. Personally, seeing year after year of revenue growth without earning a penny of profit, I was a skeptic for many of those years.
Bezos’s success and profitability of recent years shows me that I should continue to apply technical analysis to determine what the huge money investors are doing and not rely upon my own instincts or judgment! Stay tuned to see if Mr. Musk’s company can rise as well as his rockets.
(Past performance is no guarantee of future results. The advice is general in nature and not intended for specific situations)
(Statistics all obtained from Worden Bros., Inc., TC2000 Software, 2026.)