Top space stocks are in a freefall this week, with Virgin Galactic (NYSE: SPCE) falling to $4.25, its lowest level since May 28. It has slumped by over 53% from its highest point last week.
Intuitive Machines (LUNR) stock has dropped by 30% from its highest point last week, while Rocket Lab (RKLB) has fallen to $114 from the year-to-date high of $151. Most notably, the Tema Space Innovators ETF (NASA) has dropped to $35.2, down from the year-to-date high of $42.75.
SpaceX IPO may be bearish for space stocks
These stocks are falling as we predictedlast week during their bull market. The main reason for this is that the SpaceX IPOis nearing, leading to profit-taking among investors who benefited from the bull run.
In theory, SpaceX IPO should benefit companies in the industry. For one, it will be the biggest initial public offering on record, with the company raising $75 billion at a $1.75 trillion valuation.
Still, there are concerns that this IPO will be bearish for these companies. For one, the company recently slashed its IPO valuation from $2 trillion to $1.75 trillion. That is a sign that the company may have experienced weak demand during its roadshow. On Wednesday, analysts at Morningstar predicted that the real valuation is about 50% below the expected level.
Most importantly, companies tend to drop sharply after their IPOs. A closer look at the top IPOs since last year shows that most of them have crashed. Some of the most notable ones are companies like Medline, Cerebras, Venture Global, Klarna, Circle Internet, Figma, and Chime.
Valuation concerns and profit-taking
The ongoing Rocket Lab, Intuitive Machines, and Virgin Galactic stocks crash is also happening amid concerns about their valuations. At its peak, Rocket Lab stock gained a market capitalization of nearly $90 billion. Intuitive Machines’ market cap jumped to over $10 billion. These are huge numbers for companies that are not making profits.
For example, Rocket Lab has a forward price-to-sales ratio of 72.90, while Intuitive Machines has a multiple of 13. Other space companies like Planet Lab and AST SpaceMobile have substantial multiples that are hard to justify for now.
At the same time, investors are taking profits after these stocks surged recently. For example, Rocket Lab stock was up by 485% from its lowest point last year, while LUNR was up by 470% in the same period. SPCE was up 313% from the lowest level this year. It is common for stocks to pull back after such a successful bull run as investors take profits.
So, is this the end of the space stocks bull run? Probably not, as the hype surrounding the IPO is still there. However, analysts are recommending caution when going long. For example, the average estimate for the RKLB stock is $97, down by 16% from the current level.
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