Here's How Fast SpaceX Must Grow to Be a $5 Trillion Company by 2030
Key Points
SpaceX is growing rapidly right now, but it will need to sustain an annualized growth rate of 74% to achieve this goal.
It would also have to meet ambitious profit targets to justify a 150% share price increase.
Space Exploration Technologies' (NASDAQ: SPCX) market cap is currently hovering around $2 trillion. So, for it to reach $5 trillion by 2030, the stock must essentially rise about 150% in just over four years -- which would be a great return by any measure. If SpaceX can do this, it's a no-brainer buy right now.
But just how fast would its business need to grow to hit this level? The answer may surprise you.
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A ton of anticipated growth is already priced into SpaceX stock
SpaceX went public with a lot of hype and fanfare. This was reflected in its post-IPO stock price movements, which were rather erratic. However, now that we're a few months removed from the blockbuster IPO, the stock has settled into a fairly tight trading range around $150 per share -- the price at which it opened on its first day of trading.
Still, if you ask some investors (like me), that puts a very high premium on the stock. The reality is that there's a ton of hoped-for future growth already priced into it, so for it to reach $5 trillion will require a monster growth rate.
First, let's start with a core question: What valuation should this stock trade at when the company's profit margins are fully optimized? During SpaceX's IPO roadshow, it floated a target profit margin of 45%. That's a bold target, and with SpaceX's space business unlikely to be fully developed by 2030, expecting the company to achieve it by then is overly optimistic, at best.
So for now, I'm going to base my calculations on the idea that if all goes well, it could hit a profit margin of 35%. As for a valuation, I think pricing SpaceX stock at 35 times earnings would fair assessment, given the significant upside potential it has within a growing space economy.
For the company to see a $5 trillion market cap, valued at 35 times earnings, with a 35% profit margin, it would need to book $408 billion in revenue. While we don't have SpaceX's actual trailing-12-month total revenue figures, Wall Street analysts estimate SpaceX will produce about $44.5 billion in revenue this year.
So, for SpaceX to get to $408 billion in revenue by 2030, it would require the company to more than 9x its revenue, growing at a 74% compounded annual rate. That's a very lofty target, but Wall Street analysts estimate SpaceX's revenue will rise 153% next year.
For SpaceX's market cap to hit $5 trillion by 2030 -- and to have an underlying business that justifies it at that point -- is an ambitious idea. However, if SpaceX delivers growth in line with analysts' estimates for next year and maintains a similarly intense pace in the years that follow, it could do it. A big piece of the puzzle will be its profit margin. If that ends up much lower than management has forecast, that would undermine this analysis.
Keithen Drury 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.