“Trump stock” (DJT) have plummeted after their meteoric debut on the stock market. But shorting the shares, even on weak fundamentals, can be risky.
- DJT stock plummeted 18% after the company announced plans to sell 146.1 million shares, including 114.8 million owned by Donald Trump, with potential for an additional 21.5 million through warrants.
- Despite DJT’s impressive year-to-date and twelve-month gains, its nearly $5 billion valuation lacks solid fundamentals, in my view, considering $58.2 million net loss in 2023 against $4.1 million in revenues, representing a 95% shortfall from initial projections.
- Trump Media’s hype is waning, but potential volatility remains tied to Trump’s political future. Shorting DJT stock is risky due to low share supply for borrowing and high demand, resulting in substantial borrowing fees of 124%.
Trump Media Issues More Shares
Shares of Trump Media & Technology Group (DJT) plunged 18% during the trading session on April 15. This drop was triggered by news released in a company filing, indicating the company’s intention to sell 146.1 million shares of DJT. Among these shares, 114.8 million belong to Donald Trump.
Additionally, the document revealed that an extra 21.5 million shares could be sold if certain warrants are exercised. These warrants were issued during the company’s IPO via SPAC.
Despite this development, DJT shares have seen a remarkable increase of 52% year-to-date and an impressive surge of 167% over the last twelve months.
The Meme Stock Show Is Over
When a company’s share price experiences a rapid and significant increase within a short period, yet lacks solid business fundamentals and requires funding to sustain its operations, selling equity becomes one of the most common plans of action.
The advice to sell stock was even echoed by MadMoney host Jim Cramer to Donald Trump when Trump Media experienced a skyrocketing debut on the stock market following the completion of its merger.
“If I were Donald Trump, this is the moment where you say: you have an obligation to release more shares. And I’ve got shares that I’d like to release. And the board can do that. The board can say no. But the board, I think — I’m not sure where Mr. Trump’s head is, but this is a moment where he could very easily say, look, the stock’s up 286%. No one would mind if I sold stock, so please let me do it. He may say, I don’t need to because he’s prideful. But, I don’t know, I think that anybody — no one would begrudge him if he went to the board and said, look, I’d like to have some stock released.” – Cramer stated.
Trump Media’s recent surge in valuation, reaching triple digits, lacks substantial basis in fundamentals. Justifying the company’s nearly $5 billion valuation becomes increasingly challenging when considering its financial performance.
In 2023, Trump Media incurred a net loss of $58.2 million, with only $4.1 million in revenues. This represents a significant 95% shortfall compared to the company’s initial projections for 2023.
The company’s notable rise during its stock market debut can be attributed to high speculation, reminiscent of the “meme frenzy” seen with stocks like GameStop (GME) and AMC Entertainment (AMC).
However, with the announcement of dilution, the euphoria appears to have waned. While selling equity during periods of high demand can generate substantial funds to support a company’s operations, it also dilutes the company’s float, which can subsequently have a bearish impact on the stock price.
Shorting DJT Stock Is Tricky
It seems that the hype surrounding Trump Media is gradually dissolving. But it’s worth remembering that there is still one major event that could potentially bring extra volatility to DJT stock: the 2024 US Presidential race.
With Trump widely tipped to return to the White House next year, DJT stock is likely to follow Trump’s political footsteps as it did throughout its SPAC history. Digital World Acquisition (DWAC) often traded in sync with news involving President Trump since many of those who invest in Trump Media “invest in President Trump” in the first place.
Although Trump Media showcases wobbly fundamentals for a company worth around $5 billion, shorting the stock is a risky propositoin. Because only 27% of the company’s shares are available to the public, the supply of loans is low and the borrowing fees are stratospheric. At last check, fees stood at 124%, implying a costly short and a very risky bearish trade.
Source: Companies Market Cap
(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content)
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