SpaceX shares have taken a beating lately, dropping nearly 40 percent from the company’s post-IPO closing high back in June. The slide comes even as shares ticked upward on Monday and Tuesday ahead of the firm’s first-ever earnings report this week, leaving investors to wrestle with a familiar but difficult question: is a pullback like this a chance to get in at a discount, or a warning sign to stay away?
For anyone considering wading in, the first step is getting honest about why you want to buy, says Richard Reyle, chief investment officer at Questar Capital Partners. If you’re snapping up shares simply because you think they might bounce back over the next few weeks, that’s not really investing — it’s speculation. “Anytime you’re buying for a short-term movement, you’re speculating that I know more than Mr. Market,” Reyle says. But if your plan is to buy and hold because you believe in the company’s long-term potential, purchasing at a lower price can make sense — provided you’ve done your homework.
David Russell, global head of market strategy at TradeStation, puts it bluntly: buying the dip works when a stock has fallen despite solid fundamentals, not because of them. “If it falls because of bad fundamentals, then there’s a risk of it continuing lower,” he says. That means investors need to figure out whether a sell-off stems from problems specific to the company, broader industry headwinds, or just general market panic that happens to drag everything down together. It also helps to keep an eye on key indicators like profit margins, free cash flow, and whether company insiders are scooping up their own stock while everyone else heads for the exits. Expanding margins suggest a business has its costs and pricing under control even if the share price is sagging, while strong and growing free cash flow gives a company room to maneuver through tough stretches without piling on debt. And if executives are buying? They know things outsiders don’t, and they don’t tend to spend their own money unless they like what they see coming.
None of this guarantees success, of course. Even seasoned pros can’t predict where stocks will go next, and anyone making big portfolio changes would be wise to consult a financial advisor first. But for investors willing to put in the effort, understanding what’s driving a decline — and whether the underlying business remains sound — can mean the difference between catching a bargain and catching a falling knife.