Trump Media’s Tumult: Is DJT Stock Headed for More Decline?

Stocks to sell

Headlines are flooding in over former president Donald Trump’s Trump Media stock (NASDAQ:DJT), as its stock has seen a decline of more than 65% from its peak following its initial public offering a few weeks ago. A key SEC filing which showed how much the company lost last year led the way lower for this stock. Investors are clearly becoming increasingly concerned about Truth Social’s fundamentals, and pricing this into the stock.

Of course, there are plenty of political implications underpinning Trump Media stock at current levels. A resurgence of interest around the former president could drive this stock higher over any period of time. If there was ever a short-squeeze candidate with a devoted base, this is one.

However, it’s also true that fundamentals are the most important factor for any company over the long-term. I don’t think this stock has what it takes to become a viable investment for most out there.

Here’s why I think more downside is likely on the horizon for DJT stock moving forward.

DJT Stock’s Decline May Only Be Just Beginning

Trump Media’s stock plummeted over 18% last week, as the company revealed plans for existing investors to exercise stock warrants. Shares closed at $26.61. The company, behind the Truth Social app, also saw a 20% drop in the prior week as investors waited to learn more about Trump’s trial. Since going public, this stock has been on a mostly downward trajectory, and many expect this to continue.

Indeed, the company’s recent filing isn’t doing much to calm investor concerns. The company plans to issue over 21.4 million common stock shares through exercised warrants, aiming to raise around $247.1 million. Trump Media’s warrants traded at $13.69 on Friday. The company also aims to sell up to 146.1 million shares, with Trump holding 114.8 million.

Trump currently owns roughly 60% of the company’s shares, which are valued at around $2.1 billion currently. Due to a six-month lockup period, the former president won’t likely offload shares onto the market, and can’t do so without filing first. But many expect that such sales will be necessary to fund his ongoing litigation and settlements, which are being appealed. We’ll have to see how this all plays out, but it’s clear that there are a number of near-term headwinds for the stock that are notable.

The company’s loss of more than $58 million last year (on only $4.1 million in revenue) isn’t great. Until the company can show a path to profitability, most analysts will likely retain their negative views on the company.

Companies Are Ready to Sell

The influx of new shares threatens to dilute current investors’ holdings, and additional shares could hit the market after the lockup period.

Several investment firms previously holding stakes in DWAC before its merger with Trump Media registered to sell DJT shares as per Monday’s SEC filing. This included Saba Capital, which owned 194,901 shares, and its managing partner, Boaz Weinstein, who held an additional 534 shares. However, these holdings were restricted shares mandated to be retained following the original DWAC investment. 

Weinstein stated that Saba sold all unrestricted DWAC shares once the Trump Media deal was announced in October 2021. The lockup period for restricted shares was set to end six months after the merger closing, which was expected in late September.

Monday’s SEC filing disclosed original DWAC anchor investors and individual investors, including former Florida attorney general Pamela Bondi. The filing listed relatively small holdings of SPAC sponsors and individuals compared to Trump’s significant ownership. Existing investors could sell up to 146.1 million shares and over 4 million warrants.

The End is on the Horizon

Trump Media stock is primarily owned by Trump, who holds 58.1% of the company, making him the largest shareholder. He has incurred significant losses, totaling $3.1 billion from the highs and $1.8 billion from the SPAC deal’s finalization.

Supporters of Trump may continue to step into this stock, and it’s unclear at this time just how fervent retail investors will be with this name. However, personally, this is a stock without the fundamentals to justify a valuation even close to where it’s currently trading right now. On this basis alone, I think DJT stock is an easy sell call to make.

That said, anything can happen, and this will certainly be a lightning rod of a stock to watch in the coming weeks. It’s one I’ll continue to push updates through on, for this reason.

On the date of publication, Chris MacDonald 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 Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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