Is It New and Shiny?

This week’s Five-Minute Friday word is “DEAL.” Most of the time I use that word to talk about some biblical principle for life. So, for example, I could springboard off of Psalm 103:10: “He does not deal with us according to our sins, nor repay us according to our iniquities.” Or perhaps this would be thought-provoking: Proverbs 17:2: “A servant who deals wisely will rule over a son who acts shamefully and will share the inheritance as one of the brothers.”

Instead, I have been thinking about a friend’s question about the IPO of Space Exploration Technologies Corp. (SPCX) stock. Would jumping into this investment be a “good deal” as an investment? We often think what is new and shiny is a better deal than something old and perhaps dinged and a bit dated. When it comes to investing, new and shiny is often hyped and is far too often a big disappointment. Also: Things can and do explode.

Number Eight: Is It a Real Deal?

The goal of marketing is to convince you that your best opportunity to get the best deal is with the company trying to get you to buy. You can get the best deal, especially if you understand that this is a “limited time offer.” The thinking they want you to have is that if you buy now, you will be glad that you did. When it comes to IPO’s (Initial Public Offerings) that isn’t usually the case. An IPO is “the term for the first time that a private company sells shares of its stock to the public on a stock exchange.” – Investopedia

Is an IPO Your Best Investment?

It may be for the INSTITUTIONAL traders on the first day. You are not one of them. There is a “pop” due to the enthusiasm and hype surrounding the company in question.  However, IPOs are  not reliably profitable for most retail investors over the medium/long term. Why is this the case?

Studies show IPOs commonly open above the offering price — a positive average first-day return reflecting underpricing. But the average investor has a problem. The best first-day gains are often captured by institutional clients via underwriting allocations; many retail investors can’t buy at the offering price and therefore miss the largest upside.

Research finds IPOs often underperform broad benchmarks over the first year(s) after listing (many IPOs underperform the market after the initial pop). Factors like small‑cap, growth, low‑profitability profiles and lockup expirations help explain this underperformance.

So, the practical takeaway about the SpaceX deal is this: If you can only buy after the stock starts trading, don’t assume the day‑one pop is available or sustainable. Treat IPOs as higher‑risk, higher‑uncertainty investments; evaluate fundamentals, lockup schedules, and whether you can tolerate potential long‑term underperformance. Here are a couple of links that help explain this in more detail. NASDAQ or DIMENSIONAL

Seeking Alpha Opinion

I like what this author says about the rich valuation of this IPO: “SpaceX is set to go public on space and AI hype despite the financials not really supporting any of the excitement. The company is looking to raise $75 billion at a market valuation of up to $2 trillion (largest ever IPO valuation), recently filing the S-1 document with the SEC.” – Seeking Alpha

This author goes on to say: “The key investor takeaway is that the SpaceX IPO is highly hyped considering the financials aren’t overly impressive and reliant on a broadband service from Starlink, not revolutionary space or AI services. Investors should run away from buying this stock after an IPO pop, realizing the TAM isn’t any realistic market opportunity in the near term.” – Seeking Alpha

Better Alternatives to a Single Stock

If I were going to head down this path I would be more interested in ETFs that diversify the risk. One possibility is ARKX  ARK Space & Defense Innovation ETF. Another is UFO  Procure Space ETF. Pay attention to the expense ratios, the top ten holdings, and the number of holdings. I believe these are a better “deal” than SPCX. However, I might be tempted to trade options on SPCX at some point in the future.

Summary

Investors are certainly interested in a good deal. However, IPO stocks are probably riches that won’t last forever. You are better focusing your attention on chickens, sheep and bulls that are producing youngsters. You can be reasonably certain that SPCX will not fulfill your expectations.

Proverbs 27:23-24 “Know well the condition of your flocks, and give attention to your herds, for riches do not last forever…”

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All scripture passages are from the English Standard Version except as otherwise noted.