Shares of Trump Media and Technology Group(NASDAQ: DJT) zoomed 67.7% higher this week, according to data from S&P Global Market Intelligence. The company -- which is affiliated with the former president and owns the Truth Social media application -- finally merged with a special purpose acquisition company (SPAC) and entered the public markets. Investors have been trading the stock like mad and are showing no signs of slowing down.
Here's why shares of Trump Media Group were soaring this week.
$10 billion market cap on minimal revenue
This was the week Trump Media Group finally merged with Digital World Acquisition Corporation (a SPAC) and entered the public markets. The company raised around $300 million with the stated goal of fighting back against big tech censorship. Prices have traded wildly, but right now Trump Media Group is valued at a market cap of just under $10 billion -- $8.39 billion to be exact, as of this writing.
But what sort of business are you buying at this hefty market cap? Well, not much of one, to be honest. Through the first nine months of 2023 (Q4 financials aren't available yet) Trump Media Group generated just $3.4 million in revenue and posted an operating loss of $10.4 million. Assuming it generated around $5 million in revenue for the full year, that would give the stock a trailing price-to-sales ratio (P/S) over 1,000.
A P/S of 1,000 is unheard of. For reference, competing social media company Meta Platforms has never had a P/S above 20, and it is one of the most profitable companies in the world. The average P/S ratio for the S&P 500 is just under 3. This gives Trump Media Group a premium valuation, to put it mildly.
Don't get caught up in the hype
Trump Media Group stock is soaring, and a lot of people are trying to get in on the hype. You shouldn't let yourself succumb to these temptations. This is a company with minimal revenue that is losing money and will need to grow to 100 times its current revenue to even get close to fulfilling its current market capitalization.
It may soar even more in the short term. But over the long term, this stock is likely going to underperform the broader market due to its minimal intrinsic value. Smart investors will avoid buying shares of Trump Media Group and put their savings into steady blue chip stocks instead.
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Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
