Trump Media Stock is back to its starting point once again. Virtually all the gains are gone from the pre-merger January 2024 announcement low of about $17.50. The stock has tested that level twice: last September when selling lockups expired, and this April when tariff worries peaked. But the current drop is different.
Below are the daily and weekly stock charts for the 18-month period. They show the optimistic price rises and the intervening declines.
Why Didn’t The Previous Highs Hold?
Trump Media stock has traded far above its fundamental valuations because of President Donald Trump’s involvement as the majority shareholder. Its status as one of the high-priced “meme” stocks means many investors have willingly bought and held DJT shares at higher prices.
The primary catalyst has been the positive news about Trump. It sparked exciting run-ups in Trump Media’s stock. However, without such news, the stock price often trended down as shareholders awaited the next good news spurt.
Significant Declines Were Temporary
The previous two declines that reversed all gains ended up being short-term.
First was the end the lockup period for millions of shares. That was the first time the stock’s overall gain hit zero and below. That drop became a short-lived bottom that produced a reversal when investors who had held off buying and short sellers who had bet on further declines began to buy. In turn, that initial rise helped offset shareholders’ worries, plus it brought back the speculators. Thus, the risk of the lockup’s end creating lower lows ended, making that decline a one-time event.
Second is the general stock market selloff when Trump initiated large, widespread tariffs. Then, as he began to postpone and/or reduce the tariffs, the market and DJT stock began to rise, creating another short-term bottom.
What Is Different Now?
Unlike those previous selloffs, the current one is being driven by negative actions and developments that could be longer-term. Therefore, it is more serious and makes the high-priced “meme” valuation fragile. Even with the stock near the zero-gain $17.50 price, the fundamental valuation remains far below.
Prior to Trump taking office, optimistic commentaries promoted planned actions and expected results. Since taking office, though, the old saying, “when the rubber meets the road,” reappeared, revealing potholes, detours, and surprises. Those realities have chipped away at DJT’s price.
Then, there are these two realities that are causing concern:
First, the continuing lack of business growth. Even after the many press releases announcing product additions and improvements, Trump Media’s revenues remain low — under $4 million for the 12 months ended March 31, in which there has been no growth in the quarterly revenues. Without growth, the 1000x price/sales ratio is a high-risk measure. Moreover, operating expenses have been high and rising, totaling $130 million for the 12 months ended March 31. Thus, revenues would have to increase 3,500% to offset the current expense level.
Second, the focus on cash balance growth. Management has used the rising cash balance as a growth measure. However, with business operations causing a cash drain, the source of cash has been the sale of more stock, particularly through the relatively new SEPA (Standby Equity Purchase Agreement) plan. Over the six months through March 31, management sold over 20 million new shares of stock, raising about $450 million. Those sales increased the shares outstanding by 10% to 220 million shares.
The Bottom Line: Risk Of A Stock Market Selloff Remains
The U.S. stock market is still susceptible to a selloff, especially since uncertainty continues to heighten risk. For the “meme” stocks priced significantly above their fundamental valuations, the risk of a serious price adjustment (drop) also remains — particularly if the overall market is falling and undermining investor optimism.
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