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Wall Street is preparing for one of the most anticipated initial public offerings (IPOs) in years when SpaceX makes its stock market debut, which could happen as early as June.
The IPO has already caused a huge stir — partly because a larger than usual number of individual retail investors will have access to the Elon Musk-led company when it goes public.
Before you decide to invest in SpaceX stock, it’s important to know some of the risks. Here’s a look at three of them.
Also see how much investment in SpaceX IPO is enough to become rich.
retail investor crowd
Historically, IPOs have focused on institutional investors rather than retail investors. Loyalty Estimates are that the typical split is 90% institutional and 10% retail.
but as yahoo finance According to the report, the SpaceX IPO could include a “potentially massive” 30% retail allocation.
According to Chad Cummings, an attorney and CPA, this rush of retail investors can create risks you don’t typically see in an IPO. Cummings and Cummings Law Who previously worked in finance and tax.
“Retail investors clicking ‘buy’ on the morning of SpaceX’s opening aren’t ‘rushes’ — they’re an exit strategy for venture capital and private equity shares, not to mention shares held by Musk and other employees,” Cummings told GOBankingRates. “Most people thinking they are buying into the IPO are actually buying into the secondary market at the then-current market price.”
Amidst all the activity the price can rise rapidly and then fall just as rapidly. “SpaceX could buck the trend, but investors should consider the possibility of a 10% or larger decline,” Cummings explained.
high price
According to Bloomberg estimates, SpaceX’s valuation could reach $1.75 trillion or more if the stock goes public. The Motley Fool. Meanwhile, the company aims to raise $75 billion from its offering, which could push the IPO price above $600 per share.
Much of that value is based on the future potential, rather than the current performance, of subsidiaries like Starlink and XAI.
This isn’t a big problem for deep-pocketed institutional investors who can wait years for a stock to pay off. But this could be a problem for individual investors who cannot wait that long.
alon factor
SpaceX’s current and future valuation is so tied to Musk that Cummings said Musk “is the stock.” This could pose a significant risk to investors, given how Tesla’s stock has gone up and down based on what Musk has done and said.
“Their political battles have put Starlink’s FCC spectrum and Pentagon contracts on the line and those contracts are revenue,” Cummings said. “A Tesla-style tweet or a fight with the wrong senator sends the stock price soaring before you even log in to sell. That creates volatility that most other stocks don’t have. Volatility alone is not a bad thing, as it creates upside potential. But of course, that potential also amplifies the downside.”
Editor’s Note: This article is for informational purposes only and does not constitute financial advice. Investing involves risk, including possible loss of principal. Always consider your individual circumstances and consult a qualified financial advisor before making investment decisions.