There’s simply no way around it. With the Trump administration having pulled too many levers related to tariffs, China has taken the aggressive approach, retaliating against the levies with an additional 15% tax on key U.S. agricultural products. Subsequently, the apparent start of an ugly trade war sank the markets on Monday, particularly capital-intensive enterprises like Intuitive Machines (NASDAQ:LUNR).
To be clear, LUNR stock didn’t tumble just because of the retaliatory actions by Beijing. Instead, over the past five sessions, the security gave up almost half its equity value, a stunning reversal of fortune. Essentially, Intuitive — which specializes in space exploration initiatives — failed in its latest mission to the moon, with the company’s lunar lander not touching down properly.
In fairness, the mission wasn’t a complete failure; after all, the lander — called Athena — successfully reached the moon, which is no small accomplishment. Further, Intuitive has demonstrated its ability to secure lucrative contracts and largely make good on them. However, space exploration is a highly technical and delicate affair, making the outcome rather binary.
Put another way, reaching the end destination is but one part of the challenge; the other part is successfully delivering the payload or achieving some other desired outcome. One without the other doesn’t work so well in space.
Under ordinary circumstances, investors might be willing to buy LUNR stock given its steep discount (at least relative to prior highs). Again, Intuitive has been making great progress with its space flights. A few tweaks here and there may be all it takes for the company to consistently achieve full success.
Unfortunately, the economy is not geared for highly speculative ventures. As Yale Insights mentioned, space is a capital-intensive industry. In prior paradigms, financiers were heavily involved because of the potential upside opportunities. However, this capital is now moving elsewhere, such as gold.
That’s not good for LUNR stock.
While there’s no denying that Intuitive’s own hiccups combined with broader macro headwinds have clouded LUNR stock, speculators will surely be tempted with the dramatic valuation haircut. Throughout much of January, LUNR was trading hands at above $20. As I write this, shares have plunged below $7. That’s a massive (relative) discount.
As such, it wouldn’t surprise me to see a dead-cat bounce. It should also be pointed out that LUNR’s short interest stands at 20.44% of its float. If enough bulls dive into this discount, the equity could rise. That just might spark an upside panic as a short position must be bought to close. Still, speculators shouldn’t hold their breath.
For one thing, the short interest ratio sits at only 0.68 days to cover. This stat means that short traders only need less than one day to fully unwind their short position. To put it bluntly, the pool is wide but not deep. Therefore, the bulls are unlikely to drown the bears in their greed.
The other factor that gives me pause about the upside potential of LUNR stock is the forward valuation. Right now, Intuitive carries a market capitalization of $1.03 billion. With the most bullish projection for fiscal 2025 sales landing at $470 million, LUNR is still trading at 2.13X projected sales.
Keep in mind that in the fourth quarter of 2023, LUNR was trading at 0.62X sales. So, there’s room for LUNR stock to continue falling.
Finally, I’m going to conclude my argument with the statistical case. Unlike other securities popular with retail traders, LUNR stock doesn’t demonstrate a strong history of dip-buying. Since Intuitive’s initial public offering, there have only been seven instances when LUNR lost more than 20% of value over a one-week period.
Over an eight-week span following this extreme-fear event, LUNR stock has popped up only twice. Granted, during those two times, the median return has clocked in at 111.29%, which is simply gargantuan. It’s just that it’s unlikely for the positive outcome to materialize.
Of course, seven instances is a very small dataset. But even expanding the parameters to include 15% or worse one-week losses, the results are statistically worse. These parameters have seen 12 occurrences, with the positive outcome (over eight weeks) also materializing twice — a success ratio of 16.67%.
To be sure, these statistics are not set in stone. The overall framework could change moving forward. However, in my opinion, because the economic backdrop has shifted negatively — and perhaps decisively — LUNR stock may continue its downward descent.
Running a guided Monte Carlo simulation utilizing market realistic dynamics, LUNR stock potentially risks falling below $4 over the next roughly two months. While that might be a tad too aggressive, I can easily see a price tag of around $5 or below.
