Why space stocks need a bit of Elon Musk's charisma

Space stocks fizzled this past year despite their futuristic lure. Some Elon Musk-style boosterism, similar to what he did for the electric vehicle industry, might be just what they need to stage a turnaround in 2022.

Mr Musk has floated the idea of taking his SpaceX company public, and the parallel with EVs would be hard to ignore. Space exploration and electric vehicles both focus on a future that is not quite here yet, promising huge opportunities as new technologies evolve into viable companies.

But while stocks tied to the EV revolution soared this year, space-focused names – after some initial euphoria – trailed badly behind the broad market. High-profile tourist flights by Richard Branson’s publicly traded Virgin Galactic Holdings, and by Jeff Bezos’s privately held Blue Origin and Mr Musk’s SpaceX, were not enough to overcome doubts about whether this is a real business or just a divertissement for billionaires.

“From commercial space launches related to satellites and space tourism, or even more futuristic things like asteroid mining – a lot of it is a completely unproven industry, and it is not clear how much demand there is,” said Jay Jacobs, head of research and strategy at Global X Management.

What is more, there are not many pure-play public companies apart from Virgin Galactic, said Mr Jacobs, whose firm manages exchange-traded funds but has not started one for space.

This leaves the space sector without a clear front-runner or milestones that could help public investors judge progress. It does not help that the companies trading on exchanges lack a charismatic cheerleader to focus the market’s attention. If Mr Musk’s Space Exploration Technologies chooses to go public, that would solve some of those issues all at once.

“It would be a tent-pole IPO,” said Nicholas Colas, co-founder of DataTrek Research. “It is that single asset that can focus people’s attention and make them understand what space investing is about. It isn’t about going to Mars or tourism, but getting hardware to space that is current, updated technology.”

SpaceX did not respond to a request for comment.

Mr Musk is often credited with leading the automotive industry towards an electric future. It was only after Tesla’s runaway success last year – both as a company and as a stock – that other EV names really started garnering attention. Mr Musk could do the same for space stocks, according to Andrew Chanin, chief executive of ProcureAM, which manages a space ETF.

“When you see a company worth half a trillion dollars entering the market, that is bound to attract some attention for other stocks in that market,” Mr Chanin said. “There is still a public misconception of what space is, how space affects us, and there is this massive educational curve that we still haven’t seen investors truly grasp.”

Mr Musk has been stirring the pot in Musk-like fashion, musing about turning carbon dioxide into spacecraft fuel, building massive rockets, going to Mars within a decade and the potential for bankruptcy in almost the same breath. His network of more than 1,700 satellites drew criticism from China this month after two of them had close encounters with the nation’s space station.

Space tourism flights drew an outsized amount of news coverage, even though they barely scratch the surface of the industry, Mr Chanin said. The future promises commercial uses that could include applications in military and defence, telecommunications, mining, weather tracking and deep space exploration.

For now, though, starry-eyed investors have been stuck in low orbit, and sometimes in a black hole. The Procure Space ETF – which trades under the ticker UFO – has gained just 6 per cent for 2021, far behind the 28 per cent jump in the S&P 500 Index.

Virgin Galactic tumbled 45 per cent amid numerous delays to the start of commercial launches. Analysts collectively do not expect an annual net profit for the company in the next three years. At satellite launch services provider Astra Space (down 35 per cent) and space-based data and analytics company Spire Global (down 66 per cent), analysts estimate their first annual profit will come only in 2024.

Still, riding the first stages has its advantages, as many early Tesla or Bitcoin investors can vouch.