Tesla CEO Elon Musk has had a heck of a week. Yesterday, shares of Tesla Motors (TSLA) skidded to a halt after Morgan Stanley analysts warned that the stock won’t likely maintain its breakneck speed of price appreciation. According to these analysts, there are still plenty of headwinds ahead for the electric vehicle manufacturer, including air quality regulations, the shift to autonomous vehicles and unstable demand in China. Even Musk admitted that “I think our stock price is kind of high right now.” (Note: TSLA is a B-rated Cautious Buy in Portfolio Grader).
Then Musk’s other big venture—Space Exploration Technologies Corp.—got a major windfall today in the form of a multi-billion dollar NASA contract. The National Aeronautics and Space Administration awarded SpaceX—along with aerospace and defense giant Boeing (BA)—the right to shuttle astronauts to the International Space Station.
So for the first time since NASA retired its shuttle fleet in 2011, U.S. astronauts will be relying on American spacecraft—earlier U.S. manned space missions were conducted on Russia’s Soyuz rockets. The contract has a maximum payout of $6.8 billion—$2.6 billion of which would go to SpaceX and $4.2 million of which is allotted to Boeing. Currently it costs NASA $71 million per seat to fly an astronaut on Russian rockets.
As exciting as these developments are for the scientific community and all would-be astronauts, I wouldn’t jump the gun and buy BA just yet (SpaceX is a closely-held company). As with all major contracts, it will take Boeing years to iron out the kinks in this venture and turn a significant profit. In the near-term, Boeing is expected to post sales growth in the low single-digits and earnings growth in the low-teens. Meanwhile, the stock has seen a decline in institutional buying pressure in recent months so it currently barely squeaks by with a C-rating. This makes BA a hold.
It just goes to show that while the latest technological breakthrough may make for a snappy headline, it doesn’t always translate into a good buying opportunity.