Trump Media (DJT) stock is severely overvalued: is it safe to short it?

Trump Media & Technology (NASDAQ: DJT) stock price has staged a strong recovery recently. It has soared to $54.40, 142% above its lowest point in April. That surge has pushed its market cap to over $7.45 billion, pushing Trump’s net worth to over $8 billion.

Trump Media & Technology Group is one of the most severely overvalued companies in Wall Street. Its market cap is slightly smaller than Reddit, a social media platform that is popular globally with over 71 million users.

X, formerly known as Twitter, is estimated to be worth about $12.5 billion by Fidelity, one of its top investors. X is one of the most popular social media globally with over 300 million daily users.

In contrast, TruthSocial is a tiny niche social media that made just $4.1 million in revenue in 2023 and lost more money than that. Reddit and X made millions of dollars as they continued to receive ad dollars from mainstream companies.

The recent DJT stock price rally came after the company announced that it will launch a streaming platform. This platform will focus on news networks, religious channels, and other types of documentaries.

I believe that the standalone TruthSocial application and the new streaming platform will not work out in the long term. The social media platform lacks mainstream advertisers who don’t want to be associated with an app that is seen as being political.

That explains why most big companies like Apple, P&G, and Unilever have avoided advertising on Rumble, a YouTube alternative. Most companies have also ended their relationship with Fox News,a right-wing television network.

Fox News thrives in this environment because of its huge audience and the revenue it receives from cable companies like Charter Communications, Verizon, and Dish Networks. 

Further, Truth Social faces significant competition from other social media networks that target conservatives. The most notable of these are platforms like Gab, Minds, and Mastodon. 

Trump’s streaming platform will also face substantial challenges. First, the industry is highly saturated. In addition to streaming platforms like Netflix and Paramount+, it will compete with right-wing companies like The Daily Wire and Tucker Carlson Network.

Most importantly, producing quality content costs a lot of money. The Daily Wire spends millions of dollars on its creators like Matt Walsh, Michael Knowles, and Andrew Klavan. 

The implication of all this is that Trump Media investors should brace for significant dilution in the next few years since the company is already losing millions of dollars.

Further, there is a risk that Donald Trump, who is facing costly fines, will dump most of his stock when the lock-up period expires. 

DJT stock chart by TradingView

Therefore, all this means that shorting the DJT stock makes sense. While this used to work in the past, there are signs that it does not work anymore. As I questioned in February, there are signs that valuations no longer matter these days.

In the long term, I believe that Trump Media stock will ultimately implode as the dilutions accelerate. We have already seen other popular meme stock companies like Bed Bath & Beyond (BBBY) and ContextLogic (WISH) implode.

In the near term, however, the DJT share price could continue soaring because we are in an election period. Recent polling data shows that Trump will likely beat Joe Biden unless something major happens.

As a result, many retail traders will likely continue buying the stock as they anticipate his actions when he becomes president. For example, as we saw in his first term, countries and lobbies will likely start advertising on TruthSocial. Foreign governments and lobbyists used to spend millions of dollars in his Washington Hotel.

Therefore, shorting DJT right now is significantly risky and could expose you to a short squeeze. Indeed, this squeeze has already happened this year as the stock has soared by over 317% from its lowest point this year.

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