"SpaceX Could Become a Trap for Retail Investors," Warning Issued Ahead of Listing

A warning has emerged that SpaceX's IPO, expected on the 12th local time to become the largest initial public offering in history, could be the most sophisticated trap ever devised for retail investors.
The company’s valuation is seen as heavily inflated, and protections for retail investors are weak. That could give major investors a path to sell early, lock in cash, and exit.
On the 6th, The Motley Fool urged retail investors who are excited about SpaceX's listing to proceed with caution.
SpaceX is a key stock that spans the market’s two hottest themes: space and artificial intelligence (AI). Goldman Sachs and Morgan Stanley, the IPO underwriters, have also offered an optimistic view, saying the company’s main growth engine may be AI built on space data centers rather than rockets. SpaceX is expected to raise $75 billion by issuing shares at $135 each, targeting a valuation of $1.75 trillion.
Despite its flashy image, SpaceX's fundamentals are weak. Last year, it posted $18.7 billion in revenue and a $4.9 billion loss. Its ownership structure and complex revenue arrangements among affiliates are also a burden. Based on the targeted $1.75 trillion valuation, its price-to-sales ratio would approach 94 times. According to The Motley Fool, no company leading a new technology wave has sustained a P/S ratio above 30 times over the long term. It is a clear bubble.
The Motley Fool warned that the broad easing of rules to include SpaceX in major indexes could end up driving retail investors to ruin.
The NASDAQ Stock Exchange has been applying its Fast Entry rule since the 1st of last month. It shortened the waiting period for inclusion in the Nasdaq-100 Index for the top 40 mega IPO companies, excluding financial stocks, from three months to 15 days. That means SpaceX could be added to the Nasdaq-100 on the 7th of next month.
The S&P 500 Index is also expected to significantly relax its inclusion requirements for SpaceX. To be added to the index, a company must have traded in the market for at least 12 months and posted profits for four consecutive quarters, but SpaceX is expected to bypass those restrictions and qualify for inclusion this year.
That means passive exchange-traded funds tracking the index would be required to buy SpaceX shares. Tens of billions of dollars in forced buying would follow. In other words, funds backed by retail investors would be compelled to purchase SpaceX stock, helping support the share price for one to three weeks after the listing.
In particular, SpaceX has not imposed a 180-day lockup period that would prevent insiders from selling their shares after the listing to support the stock price.
dympna@fnnews.com Song Kyung-jae Reporter