SpaceX shares dipped below their $135 initial public offering price this week — and were about 30% below their mid-June peak. And there’s a good chance that they will be no higher in three years.

That’s according to data compiled by University of Florida finance professor Jay Ritter. Among all large IPOs between 1975 and 2021, the shares of close to half were below their IPO price on their third birthdays. (The exact figure is 44.5%.) And if we base SpaceX’s odds on all the IPOs in Ritter’s database, regardless of size, there’s a 56.1% probability of the stock being below water in June 2029.

Losing ground over the first couple of years post-IPO does not necessarily doom a stock’s long-term potential. A prime example is Facebook, now Meta Platforms. Its IPO was in May 2012, and by Labor Day of that year the stock was trading at 54% less than its offering price. Yet Meta’s long-term performance has been tremendous — almost 1,700% higher than its offering price, according to LSEG. That’s equivalent to about 23% annualized.

I point all this out in order to put SpaceX’s disappointing performance so far into historical perspective: The rocket maker’s stock has dropped from an intraday high above $225 share on June 16, sparking a chorus of “I told you so’s” from SpaceX’s many detractors.

I won’t defend the stock but will point out that the company’s detractors are going too far. Many IPOs struggle after coming to market, because a new issue’s shareholders are eager to sell at their first opportunity. That doesn’t necessarily mean that these sellers are bearish on the company. Employees who were given shares over the years in lieu of cash compensation, for example, have one way to lock in the cash value of their deferred compensation: by selling.

In SpaceX’s case there is a considerable overhang of shares that could be sold. Insiders who own so-called early release shares, for example, can sell up to 20% of those shares beginning two trading days after SpaceX’s second-quarter earnings report, expected in early August. Given that SpaceX’s float is small (it sold just 4% of total shares in its IPO), these insider sales could have a significant bearish effect over at least the near term.

The predictive power of an IPO’s early performance

A decline over the first six months after an IPO is a mildly bearish indicator of the stock’s likely performance over the next six months.

What significance would there be for SpaceX if its stock continues to drop in the coming weeks? Ritter noted in an email that a decline over the first six months after an IPO is a mildly bearish indicator of the stock’s likely performance over the next six months.

In SpaceX’s case, that means that if its stock is below $135 on Dec. 12, six months following its IPO, the odds are slightly elevated that the shares will also be below $135 on June 12 of next year, at the one-year mark.

These odds are illustrated in the chart above. Given the wide variability of individual IPOs’ returns in the first six months, it’s unclear how much statistical significance there is for the difference in the two groups’ average returns.

The bottom line? Investors considering SpaceX’s stock should focus on the company’s fundamentals such as earnings and revenue-growth rates. Those fundamentals will have far more impact on the stock’s long-term returns than whether it trades above or below its offering price in the months after coming to market.