Truth Social (DJT) stock surged over 70% in Monday’s pre-market trading session after the failed assassination attempt on former president Donald Trump. Despite giving back some of its gains as the market opened, the stock is looking vastly overvalued, given its current trajectory. It may be the ultimate anti-establishment meme stock, but I’m bearish on this Donald Trump company.
What Is Trump Media & Technology Group?
As the name suggests, Trump Media & Technology Group is a media company mainly owned by former U.S. president Donald Trump. It was founded in October 2021 and aims to compete with mainstream media and technology giants by promoting free speech and countering what Trump perceives as censorship and bias. Trump Media’s flagship product is the social media platform Truth Social, launched in early 2022.
Trump serves as chairman of the company, which went public in 2024 through a merger with Digital World Acquisition Corp, a special purpose acquisition company (SPAC). To say the least, its performance since listing has been volatile. The share price has also been heavily swayed by the likelihood of Trump returning to the White House.
According to estimates from Forbes, Trump has a 60% stake in the Trump Media & Technology Group, which represents the majority of his personal fortune. The stock’s success could bankroll his presidential bid. Currently, the company’s market cap sits around $7 billion.
Assassination Attempt Sends Trump Media Shares Soaring
Trump Media stock surged following the assassination attempt at an election rally in Pennsylvania on July 13, 2024. The attempt on Trump’s life appears to have elevated public sympathy and support for the former president. It not only helps reverse Trump’s image as a threat to democracy following the 2021 Washington uprising but also reaffirms his claims of being a targeted figure fighting against political adversaries.
The event also served to significantly boost his re-election odds, and the heightened possibility of Trump winning the presidency led to increased investor confidence in Trump Media & Technology Group, given Trump’s central role in the company. Trump’s chances of winning the election have soared to around 71% from a little over 50% before the assassination attempt.
Is There Any Value In Trump Media Stock?
Despite this surging share price and the heightened likelihood of Trump winning the election, analysts have cautioned against long-term optimism, as the company remains deeply unprofitable with significant losses and no substantial market moat. The stock’s rise is seemingly driven by short-term sentiment rather than fundamentals.
The company’s financial metrics are not encouraging. Recent filings indicate that revenue growth has stagnated while operating losses have accelerated. The company’s net loss for Q1 FY2024 was a staggering $327 million. This is particularly concerning for a company with just $350 million in cash, albeit with no existing debt on its balance sheet.
Additionally, many analysts expect the company to dilute existing shares soon to stay afloat, which would negatively impact those investing at the current elevated prices. Trump Media has already raised $105 million in a 12-day issuance and exercising of warrants starting June 20, with potential proceeds of up to $247 million if all warrants are exercised. Each warrant allows conversion to common stock at $11.50 per share, increasing total shares and diluting existing equity.
Moreover, Truth Social is struggling to maintain its smaller user base, let alone grow it. In May, data suggested that daily visits to Truth Social have dropped more than 21% from April and more than 35% since March. According to Similarweb (SMWB), Truth Social saw just four million visits per month in the year to April 2024, down 39% from the previous year.
Finally, valuation figures offer very little to get excited about, considering its lack of profitability. It is not clear when the company will achieve profitability, if ever.
The Bottom Line on Trump Media Stock
All the signs suggest that Trump Media stock is vastly overvalued. It’s becoming something of a meme stock, bouncing up and down on Donald Trump’s potential return to the White House. That being said, there’s more to Trump Media compared to other meme stocks — Trump is likely to become the next president of the United States.
However, while I wouldn’t be surprised to see the stock gain, it would be for reasons wholly unrelated to the fundamental principles of investing. With no moat, a substantial net loss in Q1, and dilution on the cards, I’m bearish on Trump Media.
