Why Newsmax Stock Is Plummeting This Week

Shares of Newsmax (NYSE: NMAX) are falling this week. As of 1 p.m. ET, the company's stock had lost 46%. The fall comes as the S&P 500 and the Nasdaq Composite saw one of their most chaotic weeks in years.

This week, the media company was dealt a major blow in its ongoing defamation case with Dominion Voting Systems.

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The Defamation Case Will Continue

On Wednesday, Judge Eric M. Davis of the Delaware Superior Court ruled that the cable news channel had made defamatory statements about Dominion Voting Systems when it falsely claimed the company rigged votes in the 2020 presidential election. The judge said there was "clear and convincing evidence" that Newsmax's statements were false and that they caused damage to the company.

The case will now be heard in front of a jury, which will decide whether Newsmax knew its claims were false and, if so, determine a financial penalty. A similar suit with Fox News was settled with Dominion for nearly $800 million.

It's much more than the case

While the case is bad news for the company both reputationally and financially, Newsmax stock was already sliding before the verdict. That's because even after sliding nearly 50% this week, it is wildly overvalued.

The company lost $72 million on $171 million in sales last year, yet its stock currently trades at around 19 times sales. Compare that to Fox News' parent company, Fox -- a company with much more to its business than just news -- which trades at just 1.5 times sales. Newsmax stock has much further to fall, in my opinion.

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Johnny Rice 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.