The new publicly-traded shares of Trump Media are down over 50% in two weeks. Unfortunately, that is likely not just a temporary cooling of this year’s run-up. It is probably the start of a downtrend driven by the recently revealed fundamental weaknesses of the company.
The conversion of Trump Media into a publicly-traded company delivered requirements, controls, and oversights: SEC regulations, reporting and oversight. The benefit to investors is that there are now full merger details, along with Trump Media’s operations, results, and finances. The picture is negative regarding the former Digital Acquisition shareholders.
The reason that this selloff is only beginning is that many of those shareholders have not seen the problematic revelations. After all, it takes reading and analyzing formal SEC filings. Will they eventually do so? No, but they are about to start seeing articles describing the negative merger effects and Trump Media’s weaknesses.
An example is my April 7 article, “A Disappointing Trump Media Stock (DJT) Analysis.” In it, I explain how the merger terms, Trump Media’s negative net worth, and the huge addition of “free” shares diluted Digital Acquisition’s shares book value down from $10.40 to $1.88.
The reporting information is what supports the articles saying Trump Media’s stock is overpriced. It is also why Wall Street is interested in shorting the stock. Factual valuation always overrides emotional excitement, although how quickly is always unknown.
Trump Media joins a long list of SPAC merger disappointments
Many (most) SPAC merger companies are selling below $10. Of those, there are numerous collapses to below $5, below $1, and even to a few cents. “Collapse” is the right word, as the stock prices often plummeted to fractions of their former exciting peaks. The facts argue that Trump Media will join that list.
Yes, the “Trump” name can keep the excitement alive for a while, but even a gradual erosion will lessen that effect. Also, remember that Donald Trump has many irons in the fire. With Trump Media’s merger now completed, do not be surprised if he moves on. In addition, Wall Street expects that Trump, after six months (or earlier with Board approval), may sell shares to raise cash. Because his Trump Media stockholdings are large, any selling could cause a weakness in the DJT price.
Pay attention to the $50 and $35 barriers
Popular price barriers are not precise, but they are meaningful. The first negative sign was Trump Media stock being unable to sustain its breakthrough of $50. Now it is trading just above $35. Will it fall below? If it does, it could trigger more selling because there is not any obvious, nearby support level.
The bottom line: Keep feelings at bay when investing
Emotions are an unreliable indicator of a good or bad investment. Enthusiastic optimism is the worst. It can cause an investor to buy, buy more, and hold, even as facts say, “Sell!”
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