- Elon Musk's SpaceX is headed for a historic IPO later this year.
- Jay Ritter, a professor and expert on the IPO market, says he's bearish on the offering.
- Ritter says his main concern is the space company's colossal valuation.
Investors are looking forward to historic IPO from SpaceX this year, but an economist who specializes in public markets is much less bullish.
Jay Ritter, dubbed "Mr. IPO" for his research on companies and capital markets, told Business Insider that he has concerns about SpaceX's valuation, which could be as high as $2 trillion.
Key to his bearish thesis is the company's Starlink satellite. Ritter said that projections have been for margins to expand even at a lower price point because launch costs for Starlink would come down, but he's not so sure.
"I'd be willing to bet against it," Ritter said.
Ritter added that at a $2 trillion valuation, he would short SpaceX stock when it becomes available to trade, and similar concerns have led him to short Palantir stock.
His Palantir short thesis is similar to that of short-seller Andrew Left of Citron Research, who announced a bet against it last year on the basis of what he called an "absurd" valuation.
"For the research I've done, I've looked at this in the context of SpaceX, how have the returns been over the next three years for IPOs that went public with inflation adjusted sales of at least $100 million and a price to sales ratio of more than 40," he noted. "On average, they have underperformed the market pretty substantially during the next three years."
Ritter clarified that his views on both SpaceX and Palantir are rooted in valuation, and that even great companies might not be great investment opportunities.
Even as speculation fuels growth for other space stocks, Ritter maintains that investors need to carefully consider how such a lofty price tag is calculated and justified.
"As far as I can tell, [SpaceX] is a great company," he said. "But is it worth $1.5 trillion? An awful lot of things have to go right to get the company's operations and profits to grow into that valuation."
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