Finding Logic in DJT stock: 3 Challenges Truth Social Faces

When we follow the stock exchange, we always look for the logic behind any stock’s behavior. We read the data and, through it, argue why it went up or declined instead. We can also rationally assume the stock’s prospects when examining the company’s financials. We need logic and rationale; otherwise, nothing makes any sense. That is the problem with Truth Social (DJT), the social media platform founded by Donald J. Trump, whose mission statement declared that open discourse is its main objective. The DJT stock just seems to create its own logic and rationale.

Even the conflicted numbers regarding its active users can create confusion about the platform’s potential. One data source indicates that DJT has 119,000 active users, while another says it has 2 million monthly users as of June 2024. Also, the company’s $2.4 billion market cap doesn’t make much sense, with only $5 million in yearly earnings and a $60 million loss in the same time span. As a consequence, since the company’s introduction on the New York Stock Exchange in March 2024, the stock has become something of a meme stock and, apparently, a prime interest from short sellers.

So, the DJT stock resembles its owners; if I may use an ongoing recent cliche, like its owner, the future can go either way. However, we will never see a solid company patiently going about its business, forming a long-term, rigid strategic plan. Rather, we’ll be more likely to get an eventful, high-rating reality show with twists and turns, and in the end, the public will decide on the winner.

If you wish to read more about this entertaining stock, you can read what our writer at Tipranks, Bernard Zambonin, wrote about it here or what Samuel O’brient wrote about its short seller problem right here. Now, let’s examine three challenges DJT faces and see if we can find some logic.

• High Short Interest and Volatility: The DJT stock has recently received considerable interest from short sellers, who now accounted for about 17.5% of the available shares as of early October. This means that 18% of shareholders are sold short, reflecting investors’ beliefs about the DJT stock. This can make the stock’s price even more unpredictable and subject to any group of investors’ whims, including its founder’s. The fact that Wall Street refuses to post any forecasts on the stock’s price target indicates how volatile the stock is. Last week, after a sharp decline, Nasdaq halted trade on the stock for a few minutes, but it still hasn’t stopped its continued decrease afterward.

• Gordian knot to its Founder: Much has been written about the direct correlation between Donald Trump’s personal and political life and the DJT stock’s performance. Whatever happens to him affects the stock for better or for worse. Even with the coming elections and improved chances of regaining its place at the Oval Office, Investors aren’t satisfied. Their concerns are much deeper than if he wins the presidency because this connection is just not good for business. If the company is to prosper, then it has to form its own separate identity, regardless of its founder’s exploits. As it stands now, this Gordian knot between the stock and Trump exposes its volatility.

• Meme Stock Characteristics: As written above, Truth Social’s financial performance does not warrant its $2.4 billion market cap. It has an annual loss of $60 million and an income of $5 million. The stock’s value and trading are primarily influenced by momentum traders and vague indicators, causing it to behave like a meme stock. Our writer, Bernard Zambonin, recently compared Gamestop (GME), AMC (AMC), and DJT as meme stocks. However, GME and AMC (with all its financial problems) still have more substance than Truth Social; They sell and cater to the public. GME is still a leading company in the console and gaming industry, with a reasonably healthy financial state and firm belief in its managerial stewardship. AMC is still the largest movie theater chain in the world, with over 10,000 complexes. Both these companies are subjected to recurring short sellers. However, their general state derives from the market, not their owner’s exploits.

Conclusion

DJT stock is fun to follow, perhaps because it lacks any reasoning or logic. Lately, it has become the subject of short sellers’ interest because of its volatility and unpredictability, which is never good news for any stock. However, its challenges are very much logical and real. If the company and its investors wish for successful returns, it will need to somehow separate its owner’s aura from the company so it can truly begin to prosper, if ever.