Is SpaceX Stock a Buy Before Its First Try at Catching a Starship Upper Stage?

SpaceX (SPCX -2.33%) aims to accomplish a historic feat with its 15th test flight of Starship, slated for as early as Friday, November 13. The company plans to retrieve both components of the rocket utilizing its launch tower. If both landings are successful, SpaceX claims it would be the first full recovery of an orbital launch system.

The lower section, Super Heavy booster, has been recovered on three prior test flights. However, the upper stage, known as the ship, has not been recovered before. Since its initial public offering (IPO), SpaceX's stock has reached a peak of $225.64. At the time of writing, shares are trading at around $143, approximately 37% below that high.

With an unprecedented flight approaching, is the stock a buy? While a successful catch would indeed be a significant milestone for Starship, it is unlikely to substantially alter investor sentiment at present. The mission window for the launch commences at 4:45 p.m. Central Time on Friday, subject to regulatory approval, as of the writing.

The booster is scheduled to be caught roughly six and a half minutes post liftoff. Conversely, Starship aims to deploy 26 larger V3 Starlink satellites and circumnavigate the Earth for over 22 hours before attempting a landing at the Texas-based tower. If Starship embarks on Friday, the catch would occur on Saturday afternoon. However, this final phase is not assured.

SpaceX has stated that the ship will only return to the launch site if its flight control team certifies that the necessary reentry and landing systems are functioning correctly. Otherwise, the ship could be disposed of over the ocean. Despite the risks and the uncertainty surrounding the flight, SpaceX CEO Elon Musk suggested on the October 20 earnings call that the success of this flight is more probable than not.

President Gwynne Shotwell echoed this sentiment, stating that SpaceX's objective is to refly the second stage by early next year. Reusing the ship is anticipated to transition Starship from an expensive test program into a far more cost-effective means of reaching orbit. Currently, the program continues to incur higher costs. As evidenced by the company's filing, research and development expenses in the space segment surged by 44% year-over-year to $1.2 billion in the third quarter.

This expenditure is primarily allocated to Starship's development, construction, and testing. Moreover, it has increased every quarter this year, rising from $930 million in the first quarter of the year to approximately $1.1 billion in the June quarter. Nonetheless, the segment nearly achieved break-even status. The increase in customer launches bolstered space revenue by 84% sequentially to $1.8 billion, while the segment's operating loss narrowed to $7 million from $542 million in the second quarter.

However, a year prior, the same segment achieved a profit of $259 million. The broader advantage of a reusable ship may manifest in Starlink. Approximately 358 of the 476 metric tons SpaceX transported to orbit during the third quarter were from Starlink. Additionally, SpaceX asserts that the 26 V3 satellites aboard Starship during its inaugural orbital flight could augment the downlink capacity by around tenfold compared to a Falcon 9 Starlink launch.

SpaceX's valuation stands at around $1.9 trillion, and with the current stock price, shares trade at approximately 33 times sales. However, most of this revenue does not directly relate to Starship at present. The super intelligence segment, SpaceX's artificial intelligence (AI) business, generated $7.6 billion in the latest quarter, accounting for roughly half of the total revenue.

Connectivity contributed $5.2 billion, representing around 10% of the overall revenue. The space segment, accounting for $1.8 billion, constitutes a mere 12% of the total revenue. Consequently, a successful catch could potentially bolster SpaceX's long-term prospects more than it would impact the upcoming quarters. Nonetheless, a failure or delay in Starship's subsequent flights is unlikely to significantly harm the current business.

After all, Falcon 9 already launches Starlink satellites. A setback might primarily result in a delay and additional quarters of escalating Starship expenditures. Is SpaceX stock a buy ahead of Friday's launch? In my opinion, not solely based on the potential for a tower landing. At a valuation of around 33 times sales, the stock's price is primarily influenced by AI computing and Starlink, and the Starship expense is still on the rise.

I would not recommend purchasing shares specifically in anticipation of the flight. When our analysts recommend a stock, it often proves to be a wise decision. In fact, Stock Advisor has demonstrated an impressive average return of 835% over the years, significantly outperforming the S&P 500's 208% growth. To access their insights, you can join Stock Advisor and gain access to their curated list of the top 10 stock picks for investors today.