The U.S. election is fast approaching and one stock likely to be highly volatile afterward is Trump Media & Technology Group (NASDAQ: DJT). The media stock that bears the former president's name has gone up and down along with the hype and excitement surrounding his odds of winning the next election.
Shares of Trump Media have been picking up steam of late and have rallied more than 200% in just the past month, which may be a sign that speculators believe he is in a good position to win the election. Should you consider buying the social media stock before the election on Nov. 5?
Why the stock might soar after the election
If former President Donald Trump wins the election, shares of Trump Media could rally even higher. The stock has often moved higher when sentiment has been strong that Trump will win the election and down when investors have been bearish on his chances. The election could have a similar effect.
Investors may assume that if the former president gets back into power, he may put policies into place that could be favorable to Trump Media stock, or that the victory could lead to a surge in the number of people signing up for the company's Truth Social platform. The reverse could be true if he loses.
What happens to Trump Media stock in the long term is less predictable
What will happen in the weeks and months after the election is less of a certainty. The dust will eventually settle, and at that point, the stock may come back to fundamentals, such as its growth prospects and ability to turn a profit.
And Trump Media's fundamentals don't look great right now. It's hard to gauge how popular its Truth Social platform is, as the company doesn't report on key social media metrics like daily active users. The revenue the company generates is also minimal considering its expenses.
During the first six months of the year, Trump Media generated $1.6 million in net sales, well short of the $118.5 million in operating expenses the business has incurred over that stretch, including $78.2 million in general and administrative costs. And with the recent launch of a streaming platform, the company's costs could soar even higher in the near future.
Should you buy Trump Media stock before the election?
Trump Media stock is trading like a meme stock these days. It is rallying significantly despite there being no significant news about it, which is likely a sign that speculators and retail investors are playing a big role in the stock's movements. While that can lead to large gains, it also means that there will likely be a lot of volatility, and room for the stock to crash if Trump loses the election.
This isn't much of an investable business today, which is why investors are better off avoiding Trump Media and the volatility that comes with owning the stock.
If you're serious about owning the stock for the long term, you'll likely be better off waiting to buy until well after the election and after the business proves it is generating strong growth numbers and can turn a profit. At this stage, it looks like nothing more than a speculative investment.
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David Jagielski 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.
