I’d Wait 90 Days Before Buying More SpaceX Stock. Here’s Why.

No stock has been discussed as much over the past few weeks as Space Exploration Technologies (NASDAQ: SPCX), or SpaceX, as the company set an initial public offering (IPO) record, raising $75 billion and being valued at $1.77 trillion.

The stock experienced a nice run-up in its first few trading days but has since been on a downward trajectory. As of market close on June 23, SpaceX’s stock was down 3% since its IPO. Many investors expected the volatility it has been experiencing, but it may be sooner than expected.

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Regardless of how SpaceX pans out over the next few weeks, I wouldn’t consider investing in SpaceX (or adding more shares) for another 90 days. Here’s why.

More shares will be hitting the market soon

To prevent a bunch of shares from hitting the market for sale immediately after an IPO (which could cause the stock to crash), the U.S. Securities and Exchange Commission (SEC) encourages a lockup period where insiders, such as employees and investors, must hold on to their shares before being able to sell them. The SEC doesn’t legally require a set lockup period, but it’s universally accepted as good business practice.

SpaceX also made only about 4% of its total shares available to the public in its IPO. As milestones are met, SpaceX will issue additional shares to the public to gradually increase liquidity.

Here is the current schedule of SpaceX’s lock-up periods and the number of shares expected to be released at each time.

Data source: SpaceX’s 424B4 filing.

As more shares become available and insiders unload some of their holdings, SpaceX’s stock could face downward pressure. After the 90-day mark in September, when the second block of shares is released, we’ll have a clearer picture of how the market is reacting to the new shares. Less than 10% of SpaceX shares would be floating around, but that’s much more liquid than they are now.

Will SpaceX be a buy after 90 days?

One thing about the stock market is that nobody can predict how stock prices will move in the short term. We can make educated guesses, but those rely on rationality, and the stock market is far from rational. That said, history suggests that SpaceX’s stock could underperform over the first couple of years after its IPO.

There are exceptions to every rule, but that has been the norm for many blockbuster IPOs. I would reassess SpaceX’s stock after 90 days, but even then, I wouldn’t rush to invest unless it’s somehow trading at a much steeper discount.

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Stefon Walters has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

I’d Wait 90 Days Before Buying More SpaceX Stock. Here’s Why. was originally published by The Motley Fool