Jonathan Raa | Nurphoto | Getty Images
Its share price Trump media jumped more than 12% in afternoon trading on Monday, continuing the impressive rally that began in mid-April.
The DJT index was up more than $5 a share just before 3 p.m. ET.
Trump Media owns the Truth Social app that is often used by the company’s majority shareholder, former President Donald Trump, who is also the presumptive Republican presidential nominee this year.
“TRUTH SOCIAL IS THE REAL VOICE OF AMERICA!!!” Trump wrote in a post on the website earlier Monday.
The company went public on March 26 at more than $70 per share. Over the next several weeks, share prices cratered, ending up at a low closing price of $22.80 on April 16.
DJT share price
Since then, shares of Trump Media have more than doubled in price, adding billions of dollars to the company’s capitalization and to the former president’s stake.
The gains came without significant news on the company’s improving results.
But Jay Ritter, a business professor at the University of Florida, said the recent run-up in Trump Media’s stock price may be the short-term result of recent statements and regulatory filings by the company targeting open-end sellers.
“In the last week or so the company has informed its shareholders how to make it more difficult to lend their shares to short sellers, and it is possible that the number of shares available to short sellers has decreased, increasing the [cost] short sale lending rate,” said Ritter, who specializes in initial public offerings.
“And it’s likely some of them [short sellers] they reduced it.”
Ritter also that “there may be some” short squeeze, in which short sellers, betting that the stock price will fall, are forced to buy back shares of Trump Media to replace the shares they borrowed to sell short. Such buybacks can drive up the stock price, which in turn increases the pressure on short sellers to buy stock to cover their positions, which also drives up prices.
Earlier Monday, Trump Media issued a Press release which essentially underlined previously published information to shareholders advising them how to avoid lending their shares for use by short sellers to bet the price will fall.
The company last week asked Republican House committee chairmen to investigate what it claimed was possible manipulation of Trump Media’s stock price by short sellers.
Ritter said that request, which has yet to materialize, could also help boost the stock price.
But no matter how much the onslaught of short sellers affects the price, Ritter said Trump Media remains a “meme stock,” whose stock valuation bears little or no relation to its underlying operations and future business prospects.
Trump Media has more than $200 million in cash, but its social media business last year posted a loss of $58 million on revenue of just $4.1 million.
But the company has as its effective face Donald Trump, whose political supporters are among the minority shareholders helping to boost the stock price.
“With these meme stocks it’s really hard to predict what’s going on on a daily or weekly basis,” Ritter said.
“Whether we’re dealing with a price of $32 a share a week ago, or $46 now, we question whether the stock is overvalued by 1,000% or 2,000%,” he said.
Ritter noted that Trump Media’s market capitalization, when 36 million additional shares were recently awarded to Trump as a result of keeping the stock price above $17.50, is about $8 billion.
“A company with less than $5 million in annual revenue and it’s losing a lot of money and doesn’t seem to have business plans that will generate much growth,” Ritter said. “The company might be worth a few hundred million dollars, but $8 billion seems like 2,000 percent” of what it should be worth according to traditional metrics, he said.
Ritter expects Trump Media’s stock price to eventually fall into the low single digits.
When meme stocks are “fantastically overvalued,” he said, “it’s easy to predict with a high degree of confidence that long-term returns will be very poor.”
This is developing news. Check back for updates.