SpaceX is one of the most exciting companies in the world. Reusable rockets. Starlink. Satellite internet. Lower launch costs. The possibility of changing the economics of space forever.

It is exactly the kind of company many investors would love to own. But investing has an uncomfortable truth that catches a lot of people out. A great company does not automatically make a great investment.

The price you pay matters.

Even one of the most impressive businesses in the world can become a disappointing investment if investors buy in at a valuation that already assumes too much future success.

Before investing in any company, it is important to understand the price you are paying. One simple way to do this is by using the Price-to-Earnings ratio, or P/E ratio. The P/E ratio compares a company’s share price with the profit it earns per share. In simple terms, it asks:

How expensive is the share price compared with the profit being made?

Imagine a share costs £200 and the company earns £10 of profit per share. The P/E ratio is 20. That means investors are paying £20 for every £1 of profit the share currently represents.

A higher P/E means investors are paying more today because they expect bigger profits in the future. That can work, but only if the future is good enough to justify the high price.

That can make sense for fast-growing companies. But it also creates risk, because the future has to be good enough to justify the price paid today.

SpaceX may be an incredible company, but that does not mean investors should chase it at any price.

According to the latest figures, SpaceX is now trading at a market value of around $2.1 trillion. That is a staggering valuation.

To put that in context, this is no longer a small, early-stage space business being quietly discovered by investors. It is already being valued like one of the largest companies in the world.

That matters because the higher the starting valuation, the harder it becomes for future investors to make attractive returns.

Because SpaceX is currently loss-making, a normal P/E ratio cannot be calculated. Technically, SpaceX would have negative earnings (calculated at approximately -425 P/E), but investors do not usually describe this as a negative P/E. They simply say the P/E ratio is not meaningful.

Facebook was expensive at IPO, but it was already profitable. It had around $1 billion of net income in 2011, and its IPO valued the company at roughly $104 billion, implying a rough P/E of about 100×.

Alibaba was also expensive, but again it was profitable. Its fiscal 2014 net income was about $3.77 billion, and its opening valuation was reported at almost $230 billion, implying a rough P/E of about 60×.

Google looked expensive at IPO too, but it was already profitable and growing quickly. It went public at around a $23 billion valuation, and its profit had risen to $143 million in the first half of 2004, so annualising that would imply a rough P/E of around 80×.

Image data source: Reuters, market data as of 13 Jun 26.

The original private-market estimate for SpaceX was around $400 billion, which was expensive. But at a valuation of $2.1 trillion, the bar has been raised dramatically.

The company now needs to deliver an extraordinary amount of future growth simply to justify today’s price.

Based upon the most recent figures, SpaceX generated around $18.7 billion of annual revenue but reported a net loss of around $4.94 billion.

That means investors are not currently buying a cheap profit machine. They are buying future potential.

There is nothing wrong with that in principle. Many great companies looked expensive early in their public market journey. But the risk is that investors get carried away by the story and forget the price.

At a $2.1 trillion valuation, investors are paying more than 100 times current annual revenue.

Not profit.

Revenue.

That is a huge amount to pay for a company that still needs to turn its growth into consistent, sustainable earnings.

SpaceX could continue to do amazing things. Starlink could keep growing. Rocket launches could become cheaper. Government contracts could expand. New space industries could develop. The business could become much bigger than it is today.

But even that does not guarantee strong investment returns from this starting price. That sounds strange, but it is one of the most important lessons in investing - let me explain.

A company can succeed while shareholders are disappointed.

Why?

Because the starting valuation was too high.

If investors already pay a price that assumes years of outstanding growth, then the company has to do more than succeed.

It has to exceed very high expectations.

If it merely does well, that may not be enough.

This is known as valuation compression. It happens when a company grows, but investors become less willing to pay such a high price for that growth.

For example, SpaceX could increase revenue, reduce losses and eventually become profitable. But if the market starts to view it as a more mature aerospace, satellite or infrastructure business, investors may no longer be willing to pay an extreme valuation.

The business could improve, while the share price struggles. That is the risk of buying into hype. You are not just betting that SpaceX will be successful. You are betting that it will be successful enough to justify one of the largest valuations in the world.

That is a much harder hurdle.

The lesson here is not that SpaceX is a bad company, it’s clearly not. The lesson is that you do not need to chase every exciting investment. Sometimes the best investing decision is doing nothing.

If SpaceX is already priced for perfection, then sitting on the sidelines is not something to feel worried about.

It may actually turn out to be really sensible.

There will always be exciting companies. There will always be headlines. There will always be investors making money somewhere.

But long-term investing is not about chasing every opportunity. It is about being patient, disciplined and refusing to overpay. So, if you did not buy SpaceX shares, do not panic.

You may not have missed out; you may have avoided paying way too much for something that hasn't even generate profit yet!

If you really can’t resist and want to invest in SpaceX regardless of the risk, i’d consider choosing a fund to try and spread the risk. Scottish Mortgage Investment Trust could be a good place to start: https://www.scottishmortgage.com/en/uk/individual-investors

Or, for investors prepared to be patient, there may be an opportunity to wait 6 to 12 months and see whether a sharp post-IPO correction develops.

If that happened, it could allow shares to be purchased at a significant discount to the current price.

Of course, there is no guarantee this will happen within that timeframe, or at all. SpaceX could continue rising if investor excitement remains strong.

But given the extreme valuation, the lack of current profits, and the fact the P/E ratio is not meaningful because earnings are negative, I would not be surprised to see the share price come under pressure once the initial IPO excitement fades.

That is why missing the IPO should not automatically feel like a mistake.

Sometimes patience can give investors a better entry point later down the line.

The Compounder
Long-term investing made simple.

The Compounder is for financial education and commentary only. I am not authorised or regulated by the Financial Conduct Authority and I do not provide financial advice, investment advice, or personal recommendations. Nothing published here should be taken as a recommendation to buy, sell, hold or switch any investment, fund, pension, ISA, crypto asset or financial product. Always do your own research and consider speaking to an FCA-authorised financial adviser if you are unsure.