Prediction: SpaceX Will Reach This Price in July (Hint: It's Going to Plummet)

Elon Musk's Space Exploration Technologies (SPCX 0.37%) went public on June 12. In the days since, SpaceX stock has given investors a textbook example of what happens when a widely anticipated initial public offering collides with the laws of supply and demand.

SpaceX priced its shares at $135 and had a goal of raising $75 billion from the offering. The stock opened its first session on the Nasdaq at $150 and closed that day around $161. By June 16, it had surged to an intraday peak of $225.64.

Eventually, though, that early excitement cooled, and SpaceX stock started to give back its gains. By Tuesday morning, it had even moved briefly below that initial $150 price, but by mid-afternoon, shares were hovering around $161 again.

While the opening act is over, what comes next for SpaceX investors will be considerably more complicated.

SpaceX's second-quarter earnings are right around the corner

While no official date has yet been set for the release of its first quarterly earnings report as a public company, SpaceX is expected to deliver it sometime in late July or early August. While the company's financials will matter, its top- and bottom-line figures won't be the first thing that smart investors are looking at.

SpaceX's first earnings release will be something more than just the usual financial readout: It will trigger the expiration of the lock-up period for the first tranche of insider stock holdings. And when those insiders can start selling a meaningful slice of their SpaceX shares, the changes to the supply-and-demand dynamics that result could be far more consequential than anything the company's income statement will show.

Understanding SpaceX's lock-up agreement

Most of the time, IPOs are governed by rules that prevent insiders and early investors from cashing out as soon as the companies involved become public. These restrictions mean that board members, C-suite executives, and private equity investors must wait for a certain amount of time -- 90 or 180 days, for example -- following the IPO event before they can sell shares.

SpaceX structured its lock-ups with phased releases tied to the company's earnings dates and rolling time-based milestones. Notably, specific provisions are in place that block Musk and a few other large stakeholders from selling any of their SpaceX stock until next summer at the earliest.

Per the company's S-1 filing, most SpaceX investors will be allowed to sell up to 20% of their shares -- about 911 million shares in total -- starting the second full trading day following the Q2 earnings release.

That percentage would rise to 30% if SpaceX stock trades above $175.50 (30% above the IPO price) for at least five of the 10 days prior to the earnings report. After that, smaller phased releases will occur every few weeks. The goal of this tiered approach was to avoid flooding the market with too many shares in a narrow window, and thus spread out potential downward pressure on the stock price.

In the table below, I've forecast what could happen to SpaceX stock depending on how many holders choose to sell following the first lock-up expiration.

Data source: SpaceX S-1 Filing, Yahoo! Finance.

Here is how the math shown above works:

Shares sold takes the percentage of holders and multiplies it by the maximum number of shares that could become available.
Number of shares sold is divided by SpaceX's average daily trading volume -- 289 million shares as of this writing -- to estimate how many days' worth of selling this represents.
The volume multiplier is multiplied by 10% to derive the base price drop. I estimate that each day of selling represents a 10% decline. I then reduce the base price decline by 25% to make it more realistic, as selling pressure will likely occur over several days instead of all at once. Moreover, the earnings report could attract a new cohort of buyers who support SpaceX's price floor.
The moderated price decline is applied to SpaceX's current share price of about $161 to arrive at an estimated post-report value.

The verdict: Now is not the right entry point for SpaceX stock

I think the period leading up to SpaceX's first earnings report represents the highest-risk window the stock will face this year. Investors who buy SpaceX today are paying a premium for the privilege of absorbing a supply shock that was already telegraphed in the company's pre-IPO filings.

While SpaceX's underlying businesses -- in particular Starlink and the fast-growing AI infrastructure segments -- have genuine, durable value, the stock's sensitivity makes it an abnormally risky bet right now. Despite the company's inspiring long-term story, its ambitions do not change the arithmetic of what can happen when nearly 1 billion shares become eligible to be added to a previously small public float.

I don't actually think all 911 million shares will get sold by their current holders in the days following that earnings report, of course. But my speculation is that about 30% will be. If that proves accurate, and my math does as well, we can expect to see the stock slide all the way back to its initial trading price of $150. And there's a high risk of it falling even further as investors digest the earnings report results, and as subsequent lockup tranches expire.

The prudent move would be to wait for SpaceX to report earnings and then observe how the stock reacts to the first unlock. After that, retail investors can look for more reasonable entry points once the dust settles.