Analyst reading a one page company earnings announcement
Trump Media's just-released (May 20) 1st-quarter financial statements provide the data needed by Wall Street analysts. The reports are especially important right now because the media is currently cherry-picking a misleading number: Negative earnings of $327M. That number includes mostly market-priced stock issuance items related to loan repayments and employee compensation. However, there is a serious problem...
Management's big mistake
Because revenues are low and operating income is negative, analysts need to understand Trump Media's strategies and management's expectations. A financial report, alone, is inadequate. That is why companies have a public earnings call at the time of the earnings release. The CEO and other executives provide fulsome business comments and outlooks. Then they open the call for analysts to ask pertinent questions. Only then can analysts and investors gain the confidence needed to say, "Looks good!"
Instead, Trump Media issued a short press release only, providing some numbers along with previous comments from CEO Devin Nunes. Therefore, do not expect any fundamental support from Wall Street analysts.
When fundamentals are in short supply, watch the stock price trend
The graph below shows the stock's recent attempt to break above the $50 barrier, only to have weak Friday closes. Today (May 21), following the earnings report release, the stock moved down to the interim barrier of $45.
Trump Media stock chart (30-minute plot)
Next? Weak technical picture puts stock at risk
Without a fundamental foundation, a new stock in a newish company that is losing money is ripe for a technical plunge. Picture investors running for the exit.
But aren't short sellers defeated?
Two answers:
First, no they are not. They are investors who sell a weak company stock by borrowing shares (a long-time legal process), hoping to buy later at a lower price
Second, shareholders who are likely to sell are about to outnumber short sellers. There are millions of shares awaiting SEC registration approval to sell. Because many of the shareholders got the stock from a loan conversion or as a payment, they likely do not have a strong desire to keep the shares - especially if this drop continues.
The bottom line - "Don't fight the tape"
This long-time Wall Street advice refers to recognizing a stock's trend (the direction of trades reported on the ticker tape). Because Wall Street focuses on the future, not the past, previous excitement can be undone by a falling stock price.
