Is Trump Media Stock a Buy Now?

Now that President Donald Trump is back in the Oval Office, it's a good time to evaluate whether it makes sense to invest in his company, Trump Media & Technology Group (NASDAQ: DJT). He is the majority owner of Trump Media, which is one factor giving him an outsized influence on the company's success.

His victory in the U.S. presidential election contributed to Trump Media shares climbing 36% over the last 12 months. But while Trump's impact on his company's share price proved beneficial so far, this doesn't mean the stock is a good long-term investment.

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Understanding if the company's stock is a buy requires taking a closer look at Trump Media, especially since shares are currently well above the 52-week low of $11.75 reached last September when the winner of the presidential election was far from certain.

Trump Media's business dependencies

Understanding Trump Media's business is the first step to evaluating its investment worthiness. The company is impacted by a handful of key dependencies. One of these, as the company notes, is that its "success depends in part on the popularity of its brand and the reputation and popularity of President Donald J. Trump."

In addition, Trump Media's revenue relies entirely on digital advertising generated on Truth Social, its social media platform. This advertising revenue, in turn, depends on Truth Social's ability to maintain and grow its audience.

The company is trying to expand beyond its Truth Social dependency. It released a streaming service in the third quarter of last year. This can serve as another source of advertising revenue over time if it can pull in enough viewers to attract advertisers.

CEO Devin Nunes noted other strategies for increasing revenue, saying the company is exploring "additional possibilities for growth such as potential mergers and acquisitions with companies that would benefit from Trump Media technology and branding, including in the realm of fintech."

What is this mysterious fintech solution? Trump Media is rumored to be developing a cryptocurrency payment processing service called TruthFi, based on a trademark filing it made in November.

How Trump Media's business is doing

For now, Trump Media relies on expanding Truth Social's audience to attract advertisers and grow revenue. But whether it's been successful in doing so is unknown.

The company last shared that Truth Social had 9 million sign-ups in February of 2024. However, the company has not released further data around user growth or other operational business metrics because its "management team believes that such metrics are not critical in the near future for the business and operation of the platform," according to the company.

What is known is that Trump Media's revenue is declining year over year. In Q3, the company achieved sales of $1 million, a drop from 2023's $1.1 million. And through the first three quarters of 2024, its sales of $2.6 million were down from $3.4 million in the prior year.

On top of that, Trump Media is not profitable. It suffered a third quarter net loss of $19.2 million as general and administrative costs soared over 1,000% year over year to $17.7 million.

The costs included higher accounting and finance fees, but these expenses seem necessary to get its financial house in order. Trump Media acknowledged it "identified material weaknesses in its internal control over financial reporting" for its 2023 results. Moreover, although it's working to fix the issues, the company said, "all identified material weaknesses continue to exist" as of its Q3 earnings report.

To buy or not to buy Trump Media stock

Because Trump Media's shares are up over the past year, another factor to consider is stock valuation. To do so, let's look at its price-to-sales (P/S) ratio, which tells you how much investors are willing to pay for every dollar in revenue.

Data by YCharts.

Trump Media's P/S ratio is elevated compared to much of its history, suggesting shares are overpriced at the time of writing. This indicates now is not the time to buy Trump Media stock.

More importantly, investors have no insight into how its sole source of sales, Truth Social, is faring, while the company is not profitable, costs are rising, and revenue is declining. These are all red flags.

If Trump Media can fix its financial accounting issues and begin growing revenue, then it's worth taking another look at the company. But for now, I recommend avoiding an investment in Trump Media stock.

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Robert Izquierdo 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.