Trump Media & Technology (NASDAQ:DJT) stock has been publicly traded for less than a week and already investors are seeing the kinds of meme stock movements many had expected from what will likely be 2024’s wildest special purpose acquisition company (SPAC) merger. Indeed, DJT stock is down more than 20% today after the firm raised the issue of its ability to continue as a going concern.
This announcement has surely caught some investors by surprise, given DJT’s rise to a high of nearly $80 on opening day. Now trading around $49 per share, many investors are rightly considering whether more downside is ahead — or whether shares could squeeze higher before the lockup period expires for former President Donald Trump.
Of course, DJT stock will likely remain a highly volatile option in the days to come. Looking at the implied volatility in both calls and puts, the market is clearly pricing in some wild near-, medium- and long-term swings.
Let’s dive into why there could be more downside pressure in the near term as a result of today’s announcement.
DJT Stock Sinks on Going Concern Warning
Whenever a company raises going concern doubts in a public filing, it’s never good news for investors. Basically, this means the company can’t rule out a significant likelihood of bankruptcy in the future. It also signals to the market that the company is a higher-risk option in which investors could potentially lose a lot of money in a short amount of time.
The rationale behind issuing this warning appears rather straightforward. The company noted that its net loss of more than $58 million in 2023 could raise concerns around the need for additional capital. Per the company’s filing:
“As of December 31, 2023 and 2022, management had substantial doubt that TMTG will have sufficient funds to meet its liabilities as they fall due, including liabilities related to promissory notes previously issued by TMTG.”
Now, there’s certainly a bigger buffer in play today than there was before the company went public, given the funds raised via the SPAC merger. However, Trump Media & Technology will likely continue to incur negative margins for some time as the social media firm looks to attract more users.
Revenue growth has been solid, but it’s coming off of a small base. Right now, many investors looking at the company will be doing so from a bottom-up fundamentals perspective. On that basis, DJT stock certainly appears to be trading at unsustainable multiples relative to its peer group. Accordingly, I think further downside is much more likely than upside from here.
On the date of publication, Chris MacDonald did not hold (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 InvestorPlace.com Publishing Guidelines.
