About the only positive for the Democrats when it comes to the June 27 debate between President Joe Biden and Republican candidate and former President Donald Trump is the catastrophe happened relatively early. Other than that, it was a huge victory for conservatives, which should then bode well for Trump Media & Technology Group (NASDAQ:DJT). However, seemingly resounding success could ironically hurt Trump Media stock.
One of the biggest clues centers on the performance of DJT in the price charts. On the eve of the debate, Trump Media stock closed at $36.73. It was a remarkable turnaround from just seven days prior, when shares traded hands at $26.75. Likely, anticipation of the heated matchup between Biden and Trump sparked intrigue for DJT. However, following the debate, shares slipped sharply to close at $32.75.
What gives? In my opinion, the answer is obvious: there’s no need to support the former real estate mogul and reality television star through acquiring Trump Media stock. “The Donald” and the Republicans have this race in the bag. That may be a bad development for the Democrats and voters opposed to Trump. However, DJT shareholders might not be smiling.
Unless the Democrats do something miraculous — an unlikely proposition given Biden’s stubbornness — they can’t stop the red wave. So, there’s no point in feeding a “guaranteed” victory. For that reason, I am bearish on DJT stock.
Trump Media Stock is The Donald’s Second-Biggest Extortionate Scheme
Aside from success being the ironic headwind to Trump Media stock, there’s another point to consider about DJT: it’s really the second-biggest extortionate scheme that The Donald has crafted.
His biggest extortionate scheme, of course, is the so-called Trump Bible, yours for only $59.99. But wait, if you call the number on your screen right now, you’ll get a copy of the U.S. Constitution. Snuggle up with your loved ones as you dive into Donald Trump’s favorite book, the Good Book.
Here’s the thing. If you attend a large evangelical church like the Calvary Chapel movement, you’ll get the Word of God for free. So the multiple on the Trump Bible is, ironically, infinite.
Now, Trump Media stock isn’t that bad but pretty close in Wall Street terms. Last year, the underlying company posted revenue of $4.1 million, with a net loss of $58 million. According to Gurufocus, the sales multiple for DJT comes out to 711.46X trailing-year revenue. In contrast, the interactive media industry features a median sales multiple of 1.84X.
What makes DJT stock extortionate is that for the equity to achieve a median-level valuation, the underlying company would need to post revenue of $3.01 billion. And that assumes the share count remains 189.94 million. However, with dilutive warrants, Trump Media may have to generate even more revenue.
Unfortunately, there’s no indication that DJT is anywhere close to generating $3 billion in sales. In the first quarter of this year, the company posted a net loss of $327.6 million on sales of only $770,500.
Complacency Could Hurt DJT Stock
Granted, we all know that Donald Trump represents a popular figure for Americans across the nation. Given Biden’s feeble performance, the acute need to support Trump has likely diminished.
In a tight race, I can imagine Trump’s most ardent supporters throwing caution to the wind. Whether that means buying Trump Bibles or bidding up Trump Media stock, these folks are all-in. However, when speaking authoritatively is the target benchmark, this electoral race is really the Republicans to lose.
At that moment, some rationality will likely materialize over the emotional haze. Would people in their right frame of mind pay over 711X sales for an investment that has financially demonstrated practically zero signs of a positive trajectory? I have my doubts here.
And so, that’s the reality of Trump Media stock. Without strong financials — or even the semblance of such — DJT was riding on the nature of the electoral race. With victory increasingly looking assured at this point, DJT now must depend on the greater fool theory.
Americans can be unimaginably foolish with their voting process (see Florida 2000). They’re less likely to be so with their money.
On the date of publication, Josh Enomoto 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 InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
