A meme stock is the shares of a company that gain viral popularity under retail investors because of euphoric sentiment – usually because of rumours or pumping of the stock on social media or investment forums… The pandemic saw many of these so called meme stocks soar hundreds, if not thousands of percent. Most of the time these stocks fly upwards, not on their fundamental business case but purely because so many investors are blindly piling into them. Only a small amount of these stocks really have a strong business case. And that brings us to Trump’s meme stock – Trump’s Truth Social – or the Trump Media & Technology Group.

The stock listed on the Nasdaq at $50 – and soared to $78 soon after…

It’s now pulled back to $58.

I believe investors are buying this meme stock based on an idea alone and there will be big tears soon…

What Trump’s meme stock doesn’t have

Stocks eventually track fundamentals – not sentiment. In the short-term stocks are controlled by sentiment. But in the medium to long term, fundamentals – and their true business case take over.

In the case of Trump Media it might just be the ‘lack of business’ case!

You see – this company is valued at around $11 billion – if not more – based on its current share price.

But there’s very little in terms of business to justify this valuation.

For one thing – the company only generated $3.4 million in revenue for the first nine months of its financial year.

At the same time it reported a loss of $49 million!

Truth Social is a non-entity at this point

Truth Social had around half a million active US users in February 2024 – that’s compared to 75 million X (or Twitter) users in the US and 142 million Facebook users.

According to stats Truth Social saw monthly active users drop by 51% year on year in February. So its also not a fast growing platform.

The number of unique visitors to Truth Social’s website was 648,000, down 20 per cent year over year.

The fact is social media platforms only work when they already have critical mass – Facebook, Twitter/X, Instagram, TikTok and LinkedIn are so entrenched, I believe it is unlikely another platform can challenge the monopoly or take market share from them.

Truth Social doesn’t really offer anything new or innovative and seems to only be populated by politicians and social media influencers – rather than people participating.

Only one party is benefitting from Trump’s meme stock

The only person benefitting at this point from this high stock price is Donald Trump himself.

Trump holds around 79 million shares in the company. At $58 a share that means he has a holding worth more than $4 billion.

Of course the liquidity of this is in question and whether he can realise any of that value.

Investors might be betting Trump’s profile, and the possibility of another presidency would give Truth Social the jump-start it needs.

But even then – the growth rate would have to be astronomical to justify the current valuation – not to mention a higher share price.

Simply put – at this level there’s no reason you should be investing in the stock other than pure speculation.

Eventually the reality will sink in. And the price will sink with it.

PS. If you want to know what stocks you should be buying right now to make real money then make sure you get the latest issue of Red Hot Penny Shares out now. Hurry – before the latest stock tip moves out of its ‘buy’ range.

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