In a recent editorial for MSNBC, John Rekenthaler, a notable figure in the financial industry and director of Morningstar Research Services, delivered a harsh critique of the Trump Media company’s stock, declaring it to be devoid of any real financial value and suggesting its primary function is to serve political ends.
This critique comes in the wake of the company’s stock, associated with former President Trump’s Truth Social platform, experiencing a significant surge to over $66 per share after a merger facilitated its entry into the public market. However, this initial enthusiasm has given way to a steady decline in the stock’s value, raising concerns among financial experts.
Rekenthaler’s analysis arrives amid increasing scrutiny over Trump’s aggressive promotion of the stock, actions that have reportedly augmented his wealth substantially but may potentially conflict with federal securities regulations. Adding to the controversy is the disclosure that the company’s CEO, Devin Nunes, a former Congressman, is slated to receive a substantial $600,000 retention bonus, a fact that has only fueled further debate regarding the company’s financial practices and governance.
“In 2023, Trump Media received $4.1 million in revenues,” he wrote. “Most news accounts of Trump Media’s financial report emphasized the company’s $58 million loss that year, but that amount of red ink, by itself, isn’t the problem. There’s nothing amiss with losing money to make money. The problem for Trump Media is that its sole operation, Truth Social, is highly unlikely to ever make money. Not only were its annual sales paltry — only slightly above that of a typical McDonald’s franchise — but those sales dwindled as the year progressed. The platform headed in the wrong direction.”
The initial market valuation positioned the company, trading under the ticker DJT, at an astonishing $9 billion, a figure that Rekenthaler finds absurdly inflated given the company’s modest revenue of just $4 million in the previous year. He describes this valuation as an unparalleled display of audacity within the American stock market, asserting that such a valuation is unfounded by any standard financial metrics.
Rekenthaler posits that the inflated stock price can only be rationalized as a form of political allegiance rather than an investment grounded in financial fundamentals. He suggests that investors are treating stock ownership in Trump Media not as a financial venture but as a token of membership in the broader MAGA movement, equating the investment to a political wager rather than a sound financial decision.
To put that in perspective, the normal price/sales ratio for a publicly traded company — in other words, its stock price compared to its income — is between 1 and 2. The electric car manufacturing giant Tesla has long been accused of having a grossly overvalued stock, hyped up by Elon Musk enthusiasts, as its market cap has dwarfed 5 of its largest competing automakers combined despite selling fewer cars than any of the legacy manufacturers; it had a price/sales ratio of 23 when it first went public and it is just under 6 now. For Trump Media, though, the price/sales ratio is about 1,500.
As of midday Tuesday, Trump Media’s stock was trading at $37 per share, a price that, according to Rekenthaler, cannot be justified through traditional valuation methods. He challenges investors to consider how long the stock can sustain its defiance of conventional market standards before it inevitably aligns with the broader realities of the market landscape.
This unfolding situation raises pertinent questions about the intersection of politics and financial markets, the role of celebrity and political influence in shaping market perceptions, and the long-term viability of investments driven more by political fervor than by fundamental financial principles.
