Trump Media Stock Analysis: Is DJT a Buy as Meme Mania Picks Up?

Stocks to sell

Meme stocks are certainly picking up steam. For investors in Trump Media (NASDAQ:DJT) stock that should be a good thing. Unfortunately, it hasn’t participated in this meme stock rally like GameStop (NYSE:GME) and AMC Entertainment (NYSE:AMC) have. That’s partly due to the company’s core catalysts, and its unique investor base.

As I’ve pointed out in the past, Trump Media faces high bankruptcy risk and there are plenty of reasons for long-term investors to avoid this stock at all costs. The thing is, even the worst companies can be short-term trades. And I’d expect some sort of buying pressure to materialize if the market really overheats once again.

Let’s dive into whether this stock could be a worthy trade, and some of the reasons why I’m still skeptical on this stock right now.

Performance Has Been Lacking

On Tuesday, Trump Media & Technology Group’s stock rose 5.5% to $54.50 but lagged behind other meme stocks, indicating less short-seller targeting. It had closed up 1.3% on Monday. In contrast, GameStop surged 74% after investor Keith Gill’s cryptic return to social media on Sunday.

Like GameStop and AMC, Trump Media’s stock traded independently of its financials, with executives claiming support from individual investors against short sellers. However, the modest share rally suggests short selling’s impact may be overstated. Unlike GameStop, there’s little evidence that Trump Media’s stock is heavily shorted, as nearly 65% is owned by Donald Trump and other executives, leaving few shares available for borrowing.

According to S3 Partners’ Ihor Dusaniwsky, borrowing Trump Media stock costs around 250% to 300%, compared to 4.07% for GameStop. While Trump Media’s executives claimed “naked” short selling, they provided no specific evidence.

Trump Seems Unbothered

DJT has about $4.1 million revenue in 2023, but it also came with a $58.2 million net loss. The Truth Social, Trump’s social media platform, saw some slipping activity. Despite this, the stock appears driven by investor support for Trump’s presidential bid or speculation on its volatility. Since merging with a SPAC in March, shares have fluctuated between $23 and $66.

Trump couldn’t sell Trump Media shares until the six-month lockup period ended in September, though he could have sought a waiver from the company’s board, which includes his son and former administration members.

Moreover, Trump wealth increased by $1.8 billion due to Trump Media & Technology Group, primarily owning Truth Social. A regulatory filing revealed he received 36 million additional shares as an “earnout” bonus for the stock maintaining a price above $17.50 for 20 out of 30 trading days. Trump now holds 114.75 million shares, valuing his stake at $5.7 billion.

Lawsuit Against Trump Affects Both Reputation and DJT

Trump’s defense attorney accused Stormy Daniels of changing details about a 2006 encounter, challenging her credibility in the hush money trial.

Despite focus on the hotel incident and uncomfortable testimony about a “power imbalance,” Trump’s trial hinges on financial transactions, not belief in Daniels’ account. Trump faces 34 counts of falsifying Trump Organization records, involving payments to Michael Cohen for Daniels’ silence.

Facing jail for repeated gag order violations, Trump’s attorneys challenge Judge Juan M. Merchan’s order, seeking a quick appeals court decision. If denied, they’ll pursue the state’s high court.

Dump Trump’s DJT Stock

Since last Monday, the stock surged 43%, rising $3.24 on Tuesday to $49.93. However, a lockup period prevents Trump and other executives from selling shares for five months, common in newly listed companies to prevent stock devaluation. Trump now owns about 65% of Trump Media & Technology Group, despite the company’s losses and low revenue of $4.1 million last year. 

Despite a $6.8 billion market cap, Trump Media had only $4.1 million revenue last year, resulting in a sky-high price/sales ratio of 1,210. Even if Trump boosted revenue to $100 million annually, the stock would remain overvalued. With Trump receiving $1.8 billion in DJT stock and facing large legal bills, selling shares could significantly impact the stock price.

It’s my view that this stock is likely too volatile to be viewed as a trade (on either side). I’m going to happily watch the madness from the sidelines, though I do think this stock will likely trend lower over time.

On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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