Elon Musk’s rocket and satellite company SpaceX has confidentially filed for an initial public offering with the Securities and Exchange Commission, sources told CNBC’s David Faber on Wednesday. The firm could seek a valuation of $1.75 trillion with a public listing around June, Bloomberg reports, citing people familiar with the matter.
A confidential filing means that SpaceX will submit its financials to the SEC before revealing them to the public, which must occur at least 15 days before the IPO roadshow — a series of presentations to attract potential investors.
In general, investors have reason to be enthusiastic about getting in on the proverbial ground floor of a newly public company. From 1980 through 2025, stocks have popped by an average of 19% from their offering price on the first day of trading, according to data from Jay Ritter, director of the IPO initiative at the University of Florida.
And few public offerings are likely to be as buzzy at this one. SpaceX is reportedly looking to raise up to $75 billion, which would make it by far the largest U.S. debut of all time, a title which currently belongs to Alibaba’s $22 billion offering in 2014.
Under certain circumstances, experts say, there is short-term money to be made investing at the very beginning of an IPO. But because of the potential for volatility, longer-term investors should tread carefully, and may want to take a more cautious tack.
“We’ve always taken a wait-and-see approach to that market,” says Josef Schuster, founder of IPOX Schuster, an investment and research firm focused on IPOs.
If you want to get in on SpaceX, or any IPO, you’d be wise to do some homework on how these stocks tend to behave, Schuster and other experts say. Here’s what they say you need to know.
How to invest in IPOs
While IPO shares tend to rise on the first day of trading, it’s no guarantee, and about 25% decline in value, Ritter says. Plus, Ritter’s data uses a price you may not be able to get: the offering price, which is the price set by the IPO’s underwriters before the shares hit a public exchange.
Offering-priced shares aren’t typically available to retail investors, Ritter says, particularly for “hot” IPOs where he estimates 95% of shares go to institutional investors. Across all IPOs, Fidelity pegs the split between institutional and retail investors at 90/10.
SpaceX is reportedly planning to buck this trend by making as much as 30% of the offering available to retail investors, Bloomberg reports. If you’re interested in getting offering-priced shares of SpaceX, it will be worth monitoring whether your brokerage has access to the offering, Ritter says.
If you’re unable to get shares at the offering price, you’ll have to buy them once they’re publicly available. And once shares hit the market, there’s no telling how any given IPO stock will behave, Ritter says: “On average, the open-to-close return is about zero.”
What to consider before investing in an IPO stock
If you’re interested in buying into an IPO stock, experts say there are a few factors worth considering. Here are three to watch for.
1. Float
The percentage of a firm’s stock made available to the public, known as the stock’s float, is a key factor to pay attention to. A very low float is “a big red flag” in terms of which companies have historically performed or underperformed, says Schuster.
Issuing a small number of shares can help a company’s stock pop in early trading, he says, but could lead to ongoing volatility and outsize risk in the case that a company has negative news, such as failing to generate projected earnings.
With SpaceX rumored to go to market with about 5% float, the stock could be in historically tricky territory, Schuster says. “Anything below 7%, you have to be really careful.”
2. Sales
Once a company makes public filings with the SEC, pay attention to the firm’s sales, Ritter says.
Companies that have gone public with at least $1 billion in sales over the previous 12 months, have, on average, kept up with the market in the three years following the offering, he says, “whereas smaller companies on average have underperformed.”
In other words, companies with proven sales track records are less likely to underperform than those with a spottier history.
Still, you’ll have to decide, based on the company’s fundamentals, whether it’s worth holding long-term, Ritter says. While IPO companies have tended to underperform when their share price vastly outstrips sales, a stock still may be worth buying if you believe, for instance, that a firm will be able to rapidly and consistently boost its financial performance in the years to come, Ritter says.
3. Portfolio role
It’s important to examine the role you’re hoping a particular IPO stock could play in your portfolio, experts say. Schuster says he generally favors investing after a stock has had some time on the market and cautions against trying to play the big, short-term swings that can come in the immediate aftermath of a public offering.
“I think investors really need to be careful of jumping in at this point,” he says. “However, down the road, once it starts trading, I think, let it trade and see. The entry points to IPOs have been, in many cases, much lower than the first trading day. [Some companies] haven’t been winners when we bought them on the first day or at the first close, but they’ve become winners over time.”
Both Ritter and Schuster caution against betting a large chunk of your portfolio on any single IPO stock and recommend holding any investment as part of a larger, diversified portfolio. It’s also smart to speak with a financial advisor before making any changes to your own portfolio.
And if you want early access to SpaceX or other pre-IPO names, you may already be able to get them as part of a more diversified strategy.
Mutual funds are allowed to hold up to 15% of the portfolio in so-called non-liquid assets, which can include private equity and private real estate holdings. Baron Opportunity, a mutual fund seeking to invest in innovative, fast-growing businesses, holds 14.7% of the portfolio in SpaceX at last report.
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