The Procure Space ETF (NASDAQ:UFO) and Tema Space Innovators (NYSE:NASA) are performing strongly amid the ongoing SpaceX IPO frenzy, with both funds reaching record highs of $68 and $43, respectively, as assets under management continue to climb. Still, these funds face some major risks as the IPO nears.
UFO and NASA ETFs Have Soared Ahead of the SpaceX IPO
Top space ETFs have done well this year, driven by the ongoing surge in top companies in the industry. Rocket Lab (NASDAQ:RKLB) has soared by over 436% in the last 12 months, while Planet Labs (NYSE:PL) jumped by 766%.
Intuitive Machines (NASDAQ:LUNR), AST SpaceMobile (NASDAQ:ASTS), and EchoStar (NASDAQ:SATS) have all soared by over 300% in the last 12 months. These companies have added billions of dollars in value, with RocketLab having a valuation of over $83 billion.
The surge is driven by a combination of their strong revenue growth and the upcoming SpaceX IPO, which is expected to happen in June this year. This will be the biggest IPO on record as the company will initially be valued at over $1.7 billion.
The companies have also published strong financial results as launches continue rising. For example, the most recent numbers showed that Rocket Lab's revenue jumped by 63.5% in the first quarter to $200 million, and analysts expect that its annual revenue will hit $910 million this year and $1.28 billion next year.
Similarly, Planet Lab's revenue is expected to jump by 40% this year to $427 million and 32% to $565 million next year. Intuitive Machine's revenue will jump by 350% this year to $947 million, followed by $1.1 billion next year. The space industry will likely continue doing well in the long term.
Space ETFs Face Some Major Risks
Still, the ongoing surge and inflows in space ETFs may face some major headwinds in the coming weeks. First, there is a possibility that investors may sell the news once the SpaceX IPO happens on June 12. This is a situation where investors buy an asset ahead of a major event and then sell when it happens.
Second, the ongoing surge in space stocks has left many of them highly overvalued, raising the risk of a valuation reset. For example, while companies like Rocket Lab and Planet Labs are growing, none have yet turned profitable. RKLB trades at a forward price-to-sales ratio of 91, far above the sector median of 1.9, while Planet Labs carries a multiple of 42 and LUNR, 16
Further, the ETFs have become highly overbought and diverged from their historical moving averages. This means that they may go through mean reversion, where assets pull back and approach their historical averages.
Image: Shutterstock
Login to comment