Key Points
At first glance, Space Exploration Technologies Corp. (NASDAQ: SPCX) may appear to be headed for an “obvious” pullback. IPOs tend to falter soon after their launch, and Warren Buffett specifically warned against such stocks at various points in his investing career. Additionally, with a price-to-sales (P/S) ratio approaching 135 times 2025 earnings, it may look like an open-and-shut case of overvaluation.
Nonetheless, such scenarios do not always make a stock a candidate for short-selling. Hence, before shorting SpaceX stock, investors may want to keep these two factors in mind.
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1. SpaceX is the real deal
First, SpaceX’s success is not merely an IPO hype machine based on Elon Musk’s ties to the company.
For one, it is a leader in satellite internet service through Starlink. This has become essential to users who need internet service but cannot access other types of internet infrastructure for various reasons.
Additionally, SpaceX can continue to meet demand because its dominance in private space launches enables it to develop and launch satellites as needed. Such conditions tend to foster competitive moats, likely leaving shorts with no obvious path for the decline that they would need to profit significantly.
Also, such offerings make SpaceX irreplaceable. That dramatically increases the stock’s appeal as an investment, separating it from stocks in more cutthroat industries whose competitive advantage is less obvious, if it exists at all.
2. Overvaluation can persist
Moreover, overvaluation is not always a sign of a short opportunity, and SpaceX could confirm that despite its 135 P/S ratio.
As Buffett mentor Benjamin Graham once taught, stocks tend to be voting machines in the short run and weighing machines in the long run. That implies an eventual reversion to the mean in terms of valuation, and with the average S&P 500 P/S ratio of under 4, that could translate into a significant pullback.
Nonetheless, such reversions tend not to occur instantaneously and often can take longer than an investor can stay short. Such has been the case with Palantir Technologies at a 65 sales multiple, a level that is neither a record nor a fluke. The P/S ratio has been at that level or higher continuously since late 2024 and peaked at 137 in mid-2025.
Moreover, since stock prices have no upper limits, losses on a short are theoretically unlimited, making a SpaceX short dangerous if it keeps moving higher.
Thus, while the reversion to the mean could eventually happen, it may not occur in a timely enough manner, or may even move in the opposite direction in the near term, possibly wiping out SpaceX shorts.
Shorting SpaceX stock
Although SpaceX appears overvalued in an objective sense, investors should avoid shorting it. SpaceX’s position in the markets it serves does not make the stock invincible, and a P/S ratio at around 135 takes its valuation into the stratosphere.
However, high multiples are not necessarily a sign of an immediate pullback, and Palantir has proven that valuations can remain elevated for long periods, and SpaceX is on track to confirm that.
Thus, while the communication stock’s valuation could eventually return to the mean, a short position does not guarantee that will happen in a timely manner.
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Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. 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.
