After Newsmax's Recent Dead Cat Bounce, Could the Stock Sink Even More?

Investors have plenty of colorful adages and phrases. "Don't try to catch a falling knife" and "pigs get slaughtered" come to mind. So does another morbid one: "dead cat bounce."

This last phrase is used to describe a stock that rebounds temporarily amid a general decline. Like a dead cat falling from a high perch, it bounces a little only to return to the ground.

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I think Newsmax (NYSE: NMAX) stock's recent jump was a textbook example of a dead cat bounce. Shares of the news organization soared more than 20% last week, only to quickly give up all of the gains. Newsmax stock is now down around 74% since its initial public offering on March 31. Could it sink even more?

The good news

In Newsmax's defense, the company has enjoyed its fair share of good news over the past few weeks. Its IPO started out looking great, with shares at first skyrocketing nearly 180%.

Nielsen reported that Newsmax's total audience soared 50% higher year over year in the first quarter of 2025. Newsmax had 33.6 million total viewers, up from 29.3 million in the fourth quarter of 2024. Jason Villar, the company's vice president of media and market research, proclaimed, "These strong surges in audiences rarely happen in cable news. We are clearly bucking the trend of cable news and overall cable viewership as viewers clearly like the product Newsmax is offering."

Newsmax now ranks as the No. 4 U.S. cable news channel. It's beating the combined viewership of Fox Business, CNBC, and NewsNation. Perhaps most impressively, Newsmax ranks second for engagement (as measured by the length viewers tune in) for all parts of the day among adults between the ages of 35 and 64.

The company is also holding onto its top on-air talent. Newsmax announced on April 11, 2025, that Greta Van Susteren inked a multiyear deal to remain as host of The Record with Greta Van Susteren. Van Susteren has been a key player in Newsmax's expansion of its coverage.

Newsmax's biggest problem

If we turned off the TV after hearing all of that good news, we might think Newsmax stock could be poised for strong momentum. However, I think the biggest problem for the stock is its valuation.

We can't use earnings-based valuation metrics with Newsmax for the simple reason that the company has no earnings. It posted a net loss of nearly $72.7 million last year. This reflected a significant deterioration from the $41.8 million loss recorded in 2023.

However, Newsmax's total revenue jumped roughly 27% year over year in 2024 to $171 million. The company's market cap currently hovers around $2.8 billion. That puts the stock's price-to-sales ratio at 16.3, a high level for any sector.

But what about Newsmax's growth? Could it help justify such a lofty premium? I don't think so. The average forward price-to-sales multiple for the broadcasting industry is only 0.48. Newsmax's revenue growth isn't anywhere close to what it would need to be for its valuation to look attractive.

Let's look at it another way. If Newsmax's revenue growth doubled the rate from last year and its stock traded at twice the industry average price-to-sales multiple, its market cap would be more than 90% below the current level.

Another dark cloud

There's another dark cloud above Newsmax's head as well. The company is embroiled in a lawsuit with Dominion Voting Systems, with Dominion alleging that Newsmax "published false and defamatory statements" about its role in the 2020 U.S. presidential election.

If Newsmax loses this lawsuit, it could be required to fork over $1.6 billion to Dominion. That's a steep amount for a company that generated revenue of under 11% of the total last year.

Could Newsmax stock sink more after its dead cat bounce? I think so.

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Keith Speights has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.