SpaceX’s halo fades, U.S. aerospace concept stocks collectively plunge, with several stocks dropping over 50% in June.

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The frenzy around the aerospace sector is subsiding. As the luster of SpaceX’s IPO quickly fades, U.S. aerospace concept stocks have suffered large-scale selloffs this month, with several stocks down more than 50% in June. Related ETFs have also seen their most brutal single-month performance in years.

SpaceX debuted on the Nasdaq on June 12, briefly igniting market enthusiasm for aerospace, but post-listing reality quickly cooled investors. CFRA analyst Keith Snyder pointed out that SpaceX’s public listing has boosted industry attention, but it has also exposed the high valuations of some aerospace companies under the spotlight.

He said investors are "gradually coming to terms with the reality"—that although the industry’s growth prospects remain, "the time required for this sector to truly take off may be much longer than we imagined," which is the fundamental reason behind so many unjustifiable valuations.

As of Thursday, SpaceX’s share price was only slightly higher than on its first day of trading, at about $153, down about 1% on the day, further depressing sentiment across the sector.

Multiple stocks tumble over 50% in June, sector under pressure

According to FactSet data, at least four aerospace stocks have dropped more than 50% this month: Virgin Galactic (SPCE), satellite company Redwire (RDW), space infrastructure firm Intuitive Machines (LUNR), and in-orbit transport company Momentus (MNTS). Planet Labs (PL) and Firefly Aerospace (FLY) were both down more than 40% for the month as of Thursday afternoon.

Even Rocket Lab (RKLB), which has recently had favorable news, has not been spared. The stock fell 5.5% on Thursday and has dropped 44% in June. Keith Snyder said he takes a bullish stance on Rocket Lab, but admits the stock once traded at nearly 100 times sales—a "crazy" valuation he has never seen before, and one of the main reasons he ultimately rated SpaceX a "sell".

Aerospace ETFs hit hard, UFO posts worst month in six years

The collapse has also severely hit funds tracking the aerospace industry. According to FactSet, Tuttle Capital Space Industry Income Blast ETF (SPCI) is down 47% this month, making it the worst-performing aerospace ETF; at least five other similar ETFs have dropped more than 30% this month.

Procure Space ETF (UFO) is experiencing its worst single-month performance in six years, down about 30% for the month. This drop is set to exceed the 28.8% decline seen in March 2020 at the onset of the COVID-19 pandemic, marking the largest monthly loss in the ETF’s history.

Micah Walter-Range, president of Caelus Partners and contributor to the UFO tracking index, stated in a written statement, "All aerospace ETFs are experiencing an ‘investment coma—from the pre-IPO fear of missing out on SpaceX, to the current reality of holding a highly volatile aerospace stock."

Analysts: Short-term volatility persists, long-term opportunities remain

Despite the current notable pressure, several analysts believe the sector’s long-term prospects have not fundamentally changed, but investors may need to be patient. KeyBanc analyst Michael Leshock this month upgraded Rocket Lab and Firefly to “overweight” in a client report, stating, "After volatility linked to the SpaceX IPO subsides, we see compelling investment opportunities in a rapidly growing aerospace sector."

Leshock and other analysts all point to NASA’s growing demand for commercial cooperation—NASA expects to depend heavily on commercial partners for lunar missions and other projects—and the ever-expanding market in national security. "The US government is making major efforts to build space capabilities," Leshock said, "This is not optional, but essential for the US to maintain its space leadership."

However, sector volatility may not subside in the short term. As SpaceX insiders’ lock-up periods expire, a large volume of shares will become eligible for sale, which is expected to place extra pressure on SpaceX’s stock and the entire sector over the next few weeks.

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