Elon Musk’s SpaceX has emerged as one of the most valuable aerospace franchises globally. Recent insights shed light on the remarkable multiples at which it trades, magnifying its prominence in the industry.
According to a report by The Information, SpaceX is projected to generate $8 billion in sales by 2023. Although SpaceX did not provide any comment on these numbers upon request, its achievements speak for themselves.
These numbers align with the costs associated with space exploration. In the past, an Atlas V rocket from ULA (a joint venture between Boeing and Lockheed Martin) would cost upwards of $225 million.
If we weigh the numbers objectively, SpaceX is trading at around 19 times its projected 2023 sales. This valuation surpasses that of almost all companies listed in the Nasdaq 100 Index, trailing only behind Nvidia (NVDA) and Trade Desk (TTD), which trade at approximately 27 times and 23 times their sales multiple, respectively.
Another competitor worth mentioning is Lucid Group (LCID), which comes close with a valuation of 17 times its estimated 2023 sales. Surprisingly, Elon Musk’s other prominent venture, Tesla (TSLA), is priced at a relatively modest nine times its projected 2023 sales.
Determining whether SpaceX is overvalued or not proves to be a challenging task. Price-to-sales multiples are merely a single metric investors employ to gauge the value of high-growth stocks. While they can be useful for comparisons, they are particularly valuable in situations where the profitability of startups undergoes rapid changes, rendering earnings-based valuation inadequate.
To put things into perspective, the median price-to-sales ratio for companies listed in the Nasdaq 100 hovers around 5.5 times their projected 2023 sales.
Earnings: The Key Indicator
When it comes to evaluating stocks, earnings play a crucial role. The Nasdaq 100, consisting of top tech companies, has a median long-term earnings-growth rate of approximately 13% per annum. Interestingly, the median net-profit margin for these companies stands at around 15%. Based on these figures, the Nasdaq 100 is currently trading at a price-to-earnings (P/E) ratio of about 37, with earnings growing at an average rate of 13% per year.
Determining whether a stock is expensive or cheap is subjective and is left to the judgment of the stock market participants. One tool that helps in assessing the valuation of growth stocks is the Price-to-Earnings-to-Growth (PEG) ratio. With a 13% earnings growth rate and a P/E multiple of 37, the PEG ratio for the Nasdaq 100 is approximately three times. In comparison, the PEG ratio for the S&P 500 is roughly two times.
The lower PEG ratio for the S&P 500 can be attributed to slower earnings growth. On average, the earnings of S&P 500 companies are projected to grow at a rate of around 9% per year in the foreseeable future.
Additionally, SpaceX is projected to achieve an operating profit of $3 billion in 2023, as reported by The Information. After adjusting for taxes and assuming minimal debt, it is estimated that SpaceX’s net income could amount to $2.3 billion. This implies that SpaceX shares are trading at a multiple of approximately 67 times the expected earnings for 2023. Comparatively, Tesla’s multiple based on estimated 2023 earnings is approximately 85 times.
Notably, SpaceX boasts an impressive operating-profit margin of about 38%, considering its $3 billion in operating profit and $8 billion in sales. This figure far exceeds the median operating-profit margin of 20% for Nasdaq 100 companies and the 10% for companies in the Russell 3000 with annual sales between $6 billion and $10 billion.
Although these numbers provide an interesting perspective, it is important to remember that they are subject to interpretation. Nevertheless, one thing is certain – SpaceX, with its remarkable financial performance and achievements, stands as an impressive organization.