Is Trump Media & Technology Stock Heading for $0?

Trump Media & Technology Group (DJT -6.60%) has been one of the most polarizing stocks to own this year. When the 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’s sometimes forgotten is that there’s a real company behind the stock, not just the former president. Trump Media may not be much of a business right now, but its fundamentals are still the ultimate reason why investors should consider investing in the stock or not.

However, the company’s future is uncertain, and a lot seems to be hinging on whether the former president gets elected this year. Is this stock too risky to own? Could it ultimately be headed to $0?

It has the classic signs of a meme stock

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

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

Another feature of a risky meme stock is that there are often plenty of short-sellers betting against it. The stock has averaged a fairly high short interest of more than 7% this year, and that percentage has been rising in recent weeks.

DJT Percent of Float Short data by YCharts.

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

The fundamentals are what matter, and they aren’t great

Trump Media doesn’t report user metrics — likely because they aren’t all that impressive. After all, they could help give investors a reason to buy the stock if they were good. At least they could provide investors with the hope that there’s potential for the platform to draw interest from advertisers down the road, even though the business isn’t profitable today and revenue isn’t strong,

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

In Trump Media’s August press release announcing earnings, the top bullet point was that it had $344 million in cash and no debt on its books. That’s 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 much revenue and burning through money — as is the case with Trump Media.

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

Is the stock heading to $0?

Trump Media stock could rally if speculators believe Trump’s prospects for winning the upcoming election look good and become more bullish on 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 wouldn’t change the fundamentals, which are what matter most for investors. If the business isn’t demonstrating meaningful 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 I think Trump Media stock ultimately will get to $0. It just may be a matter of how long until it gets there and what path it takes.