CNBC’s Jim Cramer said Wednesday that one of the biggest risks facing SpaceX’s upcoming IPO isn’t a lack of demand, but the possibility that too many investors are looking for a quick profit.
“Speculators aren’t there for long. They may not be there for an afternoon,” the “Mad Money” host said. “This group worries me.”
Elon Musk’s rocket company is reportedly four times oversubscribed, meaning demand from investors is roughly four times the number of shares available for sale. While this typically indicates strong interest, Kramer said the composition of the buyer base may be more important than the primary amount of demand.
His concern is that some investors are treating IPOs as short-term transactions rather than long-term investments. If these shareholders rush to sell their shares after they open, it could increase volatility and put pressure on the stock price.
“These people can hurt you,” Kramer said. “They’re not your friends because they just want to turn this over as quickly as possible.”
Instead, Kramer said the healthiest IPOs tend to attract investors who want to hold onto the stock for years.
“What you want is a deal where the only buyers are retail investors who get in very early and don’t want to sell because they’ve promised not to sell, and either stay out of the deal or buy more after they get in,” he said.
Cramer added that solid product allocation can reduce the influence of short-term traders. In his view, investors should actually hope to receive fewer shares than they asked for, as this indicates demand exceeds supply.
“If you’re aiming for 100 stocks and only get 25, you know you’re in good shape,” he said. “That makes everyone want to buy more.”
Cramer said SpaceX’s reports of oversubscription should help dampen speculator influence, but he would be more relieved if demand strengthened further.
“That shouldn’t happen considering this contract is four times oversubscribed,” he said. “But I actually accept that if SpaceX was oversubscribed 10 times, I’d feel a lot better.”
