Benzinga - by Chris Katje, Benzinga Staff Writer.
Former President Donald Trump's media company Trump Media & Technology Group (NASDAQ:DJT) made its public debut Tuesday after a SPAC merger was approved by shareholders last week.
The stock surged in its Wall Street debut, seeing strong interest from traders. Going forward, questions surround the stock’s valuation and the company being treated like a meme stock.
DJT Vs. NVDA: Trump's media company, which announced a SPAC merger in October 2021, surged to 52-week highs on Tuesday. The company traded under the ticker “DWAC” before the merger was approved.
Shares of Trump Media & Technology Group (TMTG) hit a new 52-week high of $79.38, bringing a lofty multibillion-dollar valuation to the company and significantly increasing Trump’s wealth.
With a valuation of $9.6 billion on Tuesday, Trump Media & Technology Group is valued at 2,000x its annual revenue. The multiple is calculated using $3.4 million in nine-month sales and estimating the remaining quarter, according to a Bloomberg report.
Operating as a social media company and technology company, Trump Media & Technology Group could command a premium valuation, putting aside the potential added valuation due to political dynamics and Trump’s involvement.
In this case, the valuation is incredibly high even for a technology or high-growth company.
For comparison, one of the fastest growing large-cap technology stocks NVIDIA Corporation (NASDAQ:NVDA) is trading at around 38x its estimated sales.
Often times, high growth companies that go public via traditional IPO have also been assigned huge valuations during their debuts. When Meta Platforms (NASDAQ:META) went public in 2012, the company was valued at 12.5x its estimated sales.
The average price to sales ratio for stocks in the S&P 500 is 2.83, according to GuruFocus. The record high average price to sales valuation for the S&P 500 is 3.17, according to the site.
This is a look at strictly the price-to-sales multiple, as Trump Media is not profitable, reporting a loss of $49 million in the nine-month period ending in September 2023, according to Bloomberg.
The company’s valuation was highlighted by financial commentator Herb Greenberg during a CNBC interview Tuesday. Greenberg said TMTG would trade as a penny stock if it didn't have Trump's name attached.
"I any other world with any other name or person associated with it, this would be a penny stock," Greenberg said. "This company doesn't deserve this valuation."
Accelerate CEO Julian Klymochko told Benzinga that investors trading TMTG aren't worried about valuation and are betting on Trump.
"The stock provides exposure to Donald Trump. I don't think anyone holding the shares is keen on investing in Truth Social. Those two concepts are independent," Klymochko said.
Related Link: Trump To Maintain Control Of Media Company If He Sells Majority, Goes To Jail Or Becomes President
DJT Short Opportunity?: Given the high valuation and multiples around Trump's media company, investors might be thinking about shorting the stock. This could present a difficult scenario.
According to S3 Partners’ Ihor Dusaniwsky, around 10% of the float of the company was borrowed by investors prior to the SPAC merger being completed.
After the stock debut, it became harder for investors and more expensive to short the stock. Dusaniwsky told Barron's that a limited number of shares were available to short and the fees were increasingly high to borrow shares.
Dusaniwsky also said that investors who had bet against the SPAC Digital World Acquisition Corporation prior to the merger were down around $82.5 million as of Monday. Dusaniwsky cautioned that timing a potential drop in the price of TMTG shares is risky.
"We will probably see new short sellers jump into this trade at these high stock price levels hoping for a short-term pullback back into the $30s," Dusaniwsky said. "Shorts that have been squeezed out of this trade will be replaced by new short sellers at what they see as a new attractive entry point."
Tuesday's surge in price brought another $61 million in paper losses for short sellers, bringing the total to over $140 million year-to-date for those betting against Trump's company.
Those looking to bet against the company have also been buying put options with strike prices of $30 and $50, predicting the stock will pull back from its Tuesday price in the future.
TMTG also has the potential to be treated by investors as a meme stock similar to GameStop and AMC Entertainment. High short interest in those stocks in 2021 led retail investors to flock to them and bet against the hedge funds and investors that were shorting the stocks.
Epic short squeezes occurred, and short sellers lost millions of dollars. Bloomberg reports that Trump fans on his social media platform Truth Social, which is owned by TMTG, were planning the “Mother of All Short Squeezes (MOASS),” a phrase previously used by investors who bet on GameStop.
In the future, TMTG could be highly volatile given the nature of the 2024 election cycle and numerous court cases involving Trump.
"This is going to be a way to be on or against Trump, and the Trump brand," Tuttle Capital Management CEO Matthew Tuttle recently told Benzinga.
DJT Price Action: Trump Media & Technology shares are up 10.08% to $68.07 midday Wednesday. The stock hit 52-week highs of $79.38 on Tuesday and is up over 300% in the last year.
Read Next: Trump SPAC Is Up 300% In Past Year: Why Marjorie Taylor Greene Is Losing On The Trade
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