Trump-and-dump: Speculators bet on Truth Social ‘meme’ stock

MOHAMMED Al Shalloudi, a 21-year-old graduate data analyst in the United Arab Emirates who invested in Donald Trump’s social media company, has little in common with the former U.S. president’s political supporters.

Al Shalloudi bought shares in Trump Media Technology Group (TMTG) but not because he believes in the business of its app

Truth Social or because he is a

Trump fan. He is part of an army of speculators seeking a quick lucrative trade whose bets on

TMTG have made it one of the most overvalued and actively traded U.S. stocks.

Al Shalloudi said he bought at

$37 per share and cashed out late last week at $65 per share, clinching a 76% return on his $4,000 investment in just a few days. TMTG’S stock closed on Monday at

▴

Former US president Donald Trump.

and $48.66 after listing on Nasdaq last week in a deal that valued it at just $10 per share.

“It was a no-brainer. You buy the stock, wait for Trump’s fan base to hear about it, and enjoy your profit,” Al Shalloudi said.

Reuters interviews with more than a dozen investors who posted about their positions on social media platforms such as Reddit and X found that most were looking to score a quick profit.

They bet that Trump supporters’ fascination with the stock was untethering TMTG’S stock price from the company’s business fundamentals.

TMTG’S current valuation of approximately $6.6 billion is equivalent to about 1,600 times the loss-making company’s revenue in 2023 of $4.1 million, according to LSEG data.

No other U.S. company of similar market capitalization has such a high valuation multiple, the LSEG data shows. This is despite TMTG warning

investors in regulatory filings that its operational losses raise “substantial doubt” about its ability to remain in business.

The stock is also among the most actively traded, according to Trade Alert data. While social media posts indicate some Trump supporters have bought TMTG shares, a lot of the trading volume is coming from speculators looking for a quick flip.

“I invested $10,000 last Tuesday because MAGA is crazy and they will pump the stock,” said Sarah, a 21-year-old software developer from Pennsylvania who asked for her last name not to be published. MAGA stands for Trump’s campaign slogan, ‘Make America Great Again’.

The appeal of TMTG to speculators helps explain the stock’s volatility. The shares have risen as much as fivefold in the last two months and are currently valuing Trump’s majority stake in the company at about $3.8 billion.

A bout of this volatility came on Monday, as the stock

lost more than fifth of its value. It remained unclear whether hedge funds and other Wall Street firms will get comfortable with such risks to join the speculation. Big investment firms will be required in a few weeks to disclose what, if any, their position in TMTG was as of the end of March.

Most rallies of stocks that trade based on hype among individual investors -- so-called ‘meme’ stocks such as Gamestop and AMC Entertainment -- have fizzled after a few weeks or months. Trump is not allowed to sell or borrow against his TMTG stake for six months, so the rally must last at least that long if he is to capitalize on the euphoria by cashing out.

A TMTG spokesperson did not respond to a request for comment on the impact speculators are having on the company’s market value.

James Angel, an associate

finance

professor

at

Georgetown’s Mcdonough School of Business, said it would be risky to predict when TMTG’S valuation will drop to more accurately reflect its business prospects.

“Eventually the meme stock entertainment will wear off... But it may take a very long time for the market to correct or a very short time,” Angel said.

Julian Klymochko, CEO of Accelerate, a manager of exchange-traded funds that has not invested in TMTG, called it the “mother of all meme stocks” and said it was hard to envisage it attracting long-term investors.

“I think the investors here are either speculators or amateurs just looking to make a quick buck in a highly volatile stock, and there are really no fundamental underpinnings,” Klymochko said.

(Reuters)