A new Wall Street battle is brewing as retail stock investors are once again taking on deep-pocketed investors, this time focusing on the stock of Trump Media & Technology Group (NASDAQ Ticker: DJT). Former President Donald Trump’s net worth has recently soared, potentially quadrupling from $2 billion to as much as $8 billion in less than a month. This extraordinary turnaround comes as he faced heavy financial pressures and seemed on the brink of default. His wealth has increased significantly due to a recent surge in his company’s stock price, with the potential for additional billions in earnout shares if the stock price remains above a certain level.
Despite the remarkable increase in Trump’s net worth, industry observers believe that the valuation of Trump Media & Technology Group is overpriced and unsustainable in the long run. The stock has exceeded all normal valuation metrics and is valued at a massive premium compared to other social media companies. SEC documents reveal that the company’s expected growth rates and revenue multiples are far beyond industry averages, raising concerns about the sustainability of the valuation.
The Trump Media & Technology Group became a publicly-traded company through a special purpose acquisition corporation (SPAC) known as Digital World Acquisition Corp (DWAC). The timing and valuation of the offer to merge with Trump Media raised some eyebrows, leading to an SEC investigation and fines. Despite these controversies, the merger proceeded and Trump Media became a public company, with no Fairness Opinion provided to justify the initial offer price, which raised further concerns about the company’s valuation.
Investors eyeing a potential shorting opportunity in DJT face significant challenges due to the astronomical cost of borrowing the stock. The annualized interest rate for existing short sellers is 550%, while new short sellers must pay up to 900% annualized interest. This makes it extremely risky and costly to short the stock, as the price would have to drop significantly on a daily basis for short sellers to break even. Retail investors and institutional investors are closely watching the stock’s movements, with the potential for a GameStop-like short squeeze scenario to play out.
While the stock price of DJT has experienced fluctuations and dropped from its peak, retail traders are still closely monitoring the situation. With Trump holding the majority of shares and potential earnout shares, his ownership and control over the company are significant. Despite the stock’s high valuation and the potential for retail trade rallies, shorting the stock remains a risky proposition due to the high borrowing costs and potential for retail investors to drive the price up. Observers advise caution and suggest watching how events unfold before making any investment decisions related to Trump Media & Technology Group.
