Elon Musk wants everyday investors in the SpaceX IPO. Is that a red flag?

Elon Musk’s SpaceX (NASDAQ: SPCX) IPO is almost here, with retail investors expected to play a bigger part in the offer than usual.

The company is expected to begin trading on the Nasdaq this week under the ticker SPCX, with the IPO price reportedly set at US$135 per share.

That would value SpaceX at about US$1.77 trillion, making it one of the largest companies on the US market from day one.

But the size of the float isn’t the only reason this listing is getting attention.

SpaceX is giving everyday investors a bigger piece of the pie than they normally get in a float of this size.

Retail investors are getting a bigger slice

According to The Wall Street Journal, Musk is expected to reserve a large portion of the SpaceX IPO for individual investors.

The report said retail buyers could receive around 20% or more of the offer, compared with the 5% to 7% often seen in major floats.

That gives us smaller investors a rare chance to buy into a company that has been private for more than two decades.

SpaceX is already a household name by IPO standards.

Its reusable rockets, Starlink satellite internet business, NASA work, defence contracts, and longer-term space ambitions have made it one of the best-known private companies in the world.

So, there will be plenty of investors who want exposure to the SpaceX brand before looking too closely at the numbers.

This is why the retail allocation deserves a closer look.

Getting access to a popular IPO can feel like a win. But investors are still being asked to buy into SpaceX at one of the highest valuations ever attached to a market debut.

And while the stock may still list strongly, investors should not mistake the size of the allocation for a bargain.

A quick Nasdaq-100 path

The other part to watch is what happens after SpaceX starts trading.

Nasdaq has reportedly given the company a quicker route into the NASDAQ-100 Index (NASDAQ: NDX), with SpaceX potentially eligible after just 15 trading days.

If SpaceX is added to the index, funds that track the Nasdaq-100 would likely need to buy the stock. That could add more demand soon after the IPO, especially if only a small number of shares are available to trade at first.

It also means some investors may end up owning SpaceX indirectly through ETFs or super funds, even if they decide not to buy the shares themselves.

However, the S&P 500 Index (SP: .INX) is a different story.

Reports suggest S&P has rejected a fast entry for SpaceX because companies usually need to be profitable before joining the index.

SpaceX reportedly lost US$4.9 billion last year, which makes the S&P 500 decision less surprising.

Foolish Takeaway

Without doubt, SpaceX is a remarkable company, and the IPO will probably attract huge demand.

A famous founder, a huge brand, a limited supply of shares, and forced index buying could all help support the stock early on.

But at nearly US$1.8 trillion, SpaceX is coming to market with a lot of future growth already built into the price.

That leaves very little room for disappointment if profits take longer to arrive, or if investors start looking past the SpaceX excitement.

The post Elon Musk wants everyday investors in the SpaceX IPO. Is that a red flag? appeared first on The Motley Fool Australia.

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Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.