Space Exploration Technologies Corp. (SPCX): Overvaluation Concerns Ignore The Company’s Execution

"And we have known and believed the love that God has for us. God is love, and he who abides in love abides in God, and God in him." 1 John 4:16.

It isn't always easy to comprehends God's love for us. Sometimes it doesn't feel like He is in my midst, other times it feels like His love is far more than I deserve. Regardless, His word perfectly describes the situation, He loves us more than we can imagine, and as long as I accept this, I am never apart from Him. My faith is based on His truth, that can be tested across generations. For investing, conviction is placing a thesis in place through an investment and managing it based on future expectations. Conviction like faith is not blind and must be testable over time to be proven.

The argument with SPCX is simple, the valuation of the company versus the company’s prospects. The problem is that SPCX hit the market with a valuation above $2 trillion, with less than $20 billion in revenue equating to multiples of 100 times EV/Sales and greater than 100 times OCF/share. What did many investors and analysts do, speak to all the risks and unreasonable valuation metrics.

Today, those still arguing overvaluation are going to miss out on a massive investment opportunity and will likely end up crying foul no matter how successful the company becomes. What investors and analysts didn’t anticipate was that the company’s ability to ramp annual recurring revenue, or ARR, to $100 billion sooner than later, anticipated to occur by year-end 2026.

The most important metric for investors to monitor is the company’s OCF/Share. SPCX generated an OCF margin greater than 40 percent on a last twelve-month period from its quarterly earnings report. The contract deals the company has been signing offer greater margins and have afforded the company more time to perform two critical steps. First, leverage compute efficiently while SPCX builds its own AI models and products; and second, afford the time required to commercially utilize Starship to both establish AI in space and further grow Starlink, the end goal being $1 trillion in revenue longer term. 

SPCX is on track to exceed $100 billion in ARR next year and as the company approaches $150 billion with a 40 percent OCF margin, valuation contracts significantly based on today’s stock price. SPCX could see its multiples come down to 10-15 times EV/Sales and 30-40 times OCF/Share, while witnessing revenue and OCF growth of 700 and 500 percent respectively.

A decade from now, SPCX is positioned to compete as the largest revenue-generating company in the world. Naysayers could still focus on FCF and any longer windows to achieve space payload growth, but the reality is that SPCX is building and integrating a leading approach to the future of AI beyond most companies, even for those who are currently ahead from a revenue standpoint.

There are options for each investor-type to gain access to SPCX versus individual stock ownership whether mutual funds, ETFs, or other funds with exposure to SPCX. Based on this, investors should seriously scrutinize their risk appetite. Not because SPCX is too risky to consider but based on the risk of missing out on a major sectoral and structural growth opportunity versus more conservative options, that over time, may up being the higher risk option. At today’s stock price and based on the rate of revenue growth and investments going back into the business, SPCX is poised to outperform all trillion-dollar EV companies of today.