Key Points

SpaceX holds an elevated valuation after dropping roughly 13 percent from its debut trading session close.
Its high entry price means shares could fall sharply over the next decade even with robust operational success.
Some forecasts point to exceptional revenue expansion that might still generate large gains for long-term holders.
10 stocks we like better than Space Exploration Technologies

If you purchased shares of Space Exploration Technologies on the first trading day at around 160 dollars each, the position would already show a loss. The stock has declined more than 13 percent since June 12.

Under conservative assumptions, the coming ten years could drive the price even lower.

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The reality is that SpaceX began trading at such an ambitious valuation that even strong revenue growth over the next decade may not translate into strong shareholder returns. Consider one example: assume SpaceX expands revenue 20 percent each year for ten years. That pace would bring yearly sales to about 116 billion dollars by 2036, an impressive result.

Now assume the company trades at six times annual sales. That multiple would place the market capitalization near 700 billion dollars, less than half the current 1.8 trillion dollar valuation.

Under those conditions a 5,000 dollar investment today would shrink to less than 2,000 dollars by 2036. Even if operations develop favorably, the share price could still contract.

Investors might assign a higher multiple than six times sales, or revenue could rise faster than expected. Morgan Stanley, for instance, projects SpaceX revenue could reach 3.4 trillion dollars in 2040. Holding the price-to-sales ratio at six would imply a market cap near 20.4 trillion dollars, turning a 5,000 dollar stake today into roughly 57,000 dollars.

These figures remain forecasts and rarely match actual outcomes. What is clear today is that SpaceX trades near 100 times sales, an expensive level for any business. A follower of Warren Buffett principles cannot accept that valuation and would wait for a more attractive entry point before committing for the long term.

Should you buy stock in Space Exploration Technologies right now?

Before purchasing shares in Space Exploration Technologies, consider this:

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Steven Porrello has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.