The market has a new meme stock contender after Trump Media & Technology Group Corp. DJT rocketed higher in its Nasdaq debut.
The term "meme stock" is loosely defined and often used to describe trendy stocks that are popular among retail investors. Steve Sosnick, chief strategist at Interactive Brokers, listed three "hallmarks of a meme stock" during an interview with Yahoo! Finance on Wednesday.
According to Sosnick, the three distinctive features meme stocks are:
- Quasi-religious fervor
- Disregard for fundamentals
- High short interest
Quasi-Religious Fervor: Sosnick believes the first defining characteristic of a meme stock is a devoted group of shareholders who are loyal to the stock with a "quasi-religious fervor." He pointed to AMC Entertainment AMC shareholders who call themselves "apes" as a prime example.
Sosnick suggested that former President Donald Trump's fiercely loyal political supporters may have helped create the large price move in Trump Media & Technology Group's stock this week.
Disregard For Fundamentals: According to Sosniak, quasi-religious fervor around a stock can lead to the second hallmark of a meme stock, a "disregard for fundamentals" among shareholders.
"If you are believing in the faith of a stock, if you have sort of a non-analytical view of the stock, well then you can disregard the fundamentals," Sosniak said.
A disregard for the fundamentals in Trump Media stock can be seen when comparing the company's revenue of only $3.3 million in the first nine months of 2023 with its current market capitalization of $7.51 billion, according to Benzinga Pro.
High Short Interest: The investment strategist pointed to a high degree of short interest in a stock as the third hallmark of a meme stock. Sosniak highlighted the low float size of Trump Media, which makes it difficult for short sellers to borrow shares.
"Those shorts, when it gets squeezed, add to the fervor and help turbo-charge the stock when it gets moving upwards," Sosnick explained.
Trump currently owns 80 million shares of Trump Media & Technology Group stock and is subject to a six-month lockup period before he can sell his shares, though there is some speculation that the board may vote to allow him to sell sooner.
Only time will tell if Trump Media can hold the attention of retail investors and cement its place as the newest meme stock on Wall Street.
DJT Price Action: According to Benzinga Pro, Trump Media & Technology Group shares closed down 6.43% at $61.96 Thursday.
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