‘This thing is going crazy.’ Why Trump Media stock is subject to extreme turbulence
By Matt Egan, CNN
New York (CNN) — Don’t blink. You might miss a massive move in Trump Media & Technology Group’s stock price.
The Truth Social owner has only been public for two weeks but it has already sent traders on a stomach-churning ride. Gravity-defying spikes in the share price have been followed by earth-shattering crashes. Trump Media is so turbulent that it makes bitcoin’s volatility look tame.
This extreme turbulence has caused wild swings in the net worth of the company’s largest shareholder and chairman: former President Donald Trump. His net worth has plunged by more than $2 billion since Trump Media’s closing price on March 27, the day after it went public. On just one particularly bad day, Trump’s net worth plunged by $1 billion.
There are many reasons why Trump Media shares have been so volatile, including the fact that the company is inextricably linked to the former president. His name recognition, politically polarizing nature and close association with the company have captured the attention of retail investors, professional traders and the news media, creating a volatile environment for the stock.
“Because it’s Trump, this thing is going crazy,” said Matthew Tuttle, CEO of Tuttle Capital Management, adding that it’s far too volatile for retail investors to buy the stock long term or bet against it.
During Trump Media’s first nine trading days with the ticker symbol “DJT,” the stock has moved up or down by at least 5% each day. More than half the days it has moved by double-digit percentages.
That is not normal.
Trump Media’s daily stock performance has a standard deviation of about 13%, according to Michael Ohlrogge, associate professor at NYU School of Law. That’s more than six times the average over the same period for companies with a similar market valuation.
‘Untethered’ to fundamentals
One reason Trump Media is moving so much more than a typical stock is because it achieved a very lucrative valuation when it went public that experts say defies logic. And stocks with ridiculous valuations tend to be more volatile, with little support once they start plunging.
Truth Social’s monthly active US users on iOS and Android plunged 51% year-over-year in February, according to Similarweb.
Trump Media lost $58 million in 2023 and generated very little revenue: just $4.1 million that year. And yet it was valued at as much as $11 billion the day it started trading.
“This stock seems to be completely untethered to fundamental value,” said Ohlrogge.
Here’s how high Trump Media’s valuation is: Even if the stock price plunged by 50% each day this week, it would still be valued much more richly than any of its peers, according to Matthew Kennedy, senior IPO strategist at Renaissance Capital.
One common way to value stocks is to measure their price-to-sales ratio. Kennedy pointed out that a 50% drop each day this week would leave Trump Media with a market valuation of about $173 million. That would equal about 40 times the company’s 2023 revenue. By comparison, Reddit is trading at 11 times trailing revenue, Facebook owner Meta is trading at 10 times and Snap at four times. Even Rumble, the video platform that describes itself as “immune to cancel culture,” is trading at 22 times sales.
“A company with minimal revenue doesn’t have much of a floor,” said Kennedy.
Few shares are trading
Another factor: Analysts say Trump Media’s shareholder base likely consists of a significant number of momentum traders. Those traders can amplify moves in the market, turning a 4% dip into a 12% one — and vice versa.
“Traders who buy on momentum will just as quickly sell on momentum. Any piece of negative news can spark a selloff, or even a lack of news can,” said Kennedy.
Another factor is the fact that Trump Media is a new stock.
Companies that go public through a traditional initial public offering (IPO) or by merging with a special purpose acquisition company (SPAC), like Trump Media did, tend to experience a bumpy ride at first.
That’s in part because there isn’t much of a trading history and these are less established companies. Additionally, a chunk of the shares are stuck on the sidelines due to lock-up restrictions that prohibit insiders from selling their stock.
That issue is magnified with Trump Media. The former president alone owns 78.8 million shares and he can’t sell that stock anytime soon.
Trump Media has nearly 137 million shares outstanding. However, its free float — which measures the number of shares that are potentially available for trading — is just 40 million, according to Refinitiv.
The actual number of shares changing hands is likely even smaller, making the stock subject to high levels of volatility.
People who want to short it can’t
The tiny float makes it very difficult for skeptics who want to bet against Trump Media to do so.
In order to short a stock, a trader must borrow shares elsewhere first. But that has been almost impossible with Trump Media because it’s been prohibitively expensive.
As of last Thursday, Trump Media was easily the most expensive stock to borrow among those with more than $50 million of short interest, according to S3 Partners.
Bob Sloan, managing partner at S3 Partners, told CNN that this distinction indicates speculative bearish investors see a “high probability” the stock will drop in the short term.
“The rate to borrow is insane,” said Tuttle. “At one point, it was virtually impossible to make money shorting it because the stock could go to zero and the borrow rate would erode all of your gains, which is crazy.”
Not only is the supply of shares to borrow very low, but the demand is high because some market veterans believe it is overvalued.
“People really, really want to short it. That is driving up the borrowing rate exponentially, which then makes it very hard to short,” said Tuttle, who tried and failed to short even just $100 of stock from his Charles Schwab account on Monday and was unable to due to insufficient shares available.
This dynamic makes it easier for investors to place bullish bets, sending Trump Media shares surging.
“At some point, retail guys are going to pump this. We could be sitting here tomorrow and it could be trading at $70,” Tuttle said.
Normally, when stocks spike above their fundamental value, short sellers swoop in and drive it back down, profiting along the way. But that has been trickier with Trump Media, allowing its stock to spike in its early days.
“There is not the normal check on irrationally high prices,” said Ohlrogge, the NYU professor.
The Trump factor
All of this has been amplified by the Trump factor: The fact that this company is inextricably linked to the popularity and political fate of the former president.
“If this was not DJT but my initials of MBT, this thing would be trading at a buck,” said Tuttle.
In some ways, the stock has become a vehicle for people to bet on the political fortunes of Trump.
“The company is worth some amount of money if Trump becomes president and a much, much lower amount if he doesn’t,” said Renaissance’s Kennedy.
Some people are only betting on or against the stock because of their feelings about the former president. And that debate is playing out in real time.
Jonathan Macey, a professor at Yale Law School, said this divide helps explain the tug-of-war in the marketplace.
“There are Trump supporters who see a big balloon rising and think that it will never fall to earth,” Macey said. “There are sophisticated investors, who understand things like gravity, and are betting on its swift return to ground.”
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