Is Trump Media & Technology Stock Falling to $0?

Trump Media & Technology Group (DJT -4.17%) has been one of the most polarizing stocks held this year. When optimism surrounding Donald Trump’s chances of winning the presidential election was high, the stock was doing well. But when the outlook changed, the stock quickly went into negative territory.

What is sometimes overlooked is that there is a real company behind the actions, not just the former president. Trump Media may not be a very big deal right now, but its fundamentals are still the ultimate reason why investors should consider investing in the stock or not.

However, the future of the company is uncertain and much seems to depend on whether the former chairman is elected this year. Is this stock too risky to own? Could it eventually be headed for $0?

It has the classic signs of a meme stock

Trump Media generates minimal revenue and the Trump Social social media platform isn’t exactly taking off and giving other social media stocks cause for concern. As with other meme stocks, factors outside of the company’s core operations drive its stock price, not the fundamentals.

When President Joe Biden announced he was dropping out of the July election, shares of Trump Media continued to fall, as speculators likely saw worse prospects for Trump winning against Democratic nominee Kamala Harris than they did against Biden. Since that July 21 announcement, Trump Media has lost half its value.

Another characteristic of a risky meme stock is that there are often a lot of short sellers betting against it. The stock has averaged quite a bit more short interest of over 7% this year, and that percentage has increased in recent weeks.

DJT Percent of Float Short data by YCharts.

This opens the door to a possible short squeeze if speculators become more optimistic about Trump’s chances, which would add to the overall risk and volatility that could come from owning the stock.

It’s the fundamentals that matter and they’re not great

Trump Media doesn’t report user metrics — probably because they aren’t all that impressive. After all, it could help give investors a reason to buy the stock if they were any good. At least it could give investors hope that there is potential for the platform to attract interest from advertisers down the road, even if the business isn’t profitable today and revenues aren’t strong,

I always look at the information a company leads when it reports earnings because it can help indicate what it thinks is most important for investors to focus on. For an unprofitable company, it could be user growth or some other measure that suggests it’s doing well, such as reducing losses.

In Trump Media’s August press release announcing the earnings, the main point was that it had $344 million in cash and no debt on its books. This is not exactly exciting for growth investors. Simply having a lot of cash doesn’t make a business worth investing in, especially if it’s not generating a lot of revenue and burning cash — as is the case with Trump Media.

An average investor looking for a quality stock would probably pass on Trump Media stock because there isn’t much substance behind it. At this point, it’s mostly a speculative play.

Is the stock headed for $0?

Shares of Trump Media could rise if speculators see Trump’s prospects of winning the upcoming election looking good and become more optimistic about his chances. That would still be a short-term reason to bet on the stock — not to invest in it for the long term.

A short-term move fueled by election hopes would not change the fundamentals, which are most important to investors. If the business isn’t demonstrating significant growth in its operations, isn’t profitable, and isn’t generating positive cash flow, there’s little reason to expect the stock to go anywhere but down.

These are the reasons why I think Trump Media stock will eventually hit $0. It may just be a matter of how long it takes to get there and what road it takes.