Down More Than 90% From Its All-Time High, Is Newsmax Stock a Buy on the Dip or an Investment to Steer Clear of?

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18 hours ago

Newsmax went public in late March, and its stock rocketed higher quickly, then plunged back toward its IPO price.
It's demonstrating impressive growth in viewership and follower interactions on social media.
Even at its now-lower price, Newsmax stock isn't cheap.
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Newsmax (NYSE: NMAX) has only been a public company for about three months, but the conservative media outlet caught public attention at its initial public offering (IPO), surging from its IPO price of $10 to $233 within a few days, then began a precipitous drop back. It's now trading around 94% below its high, in the neighborhood of $14 to $15. But is it a rare buying opportunity at that price or a value trap?
Newsmax is a conservative media company with several revenue-generating assets, including broadcast TV channels and other media outlets that make money from advertising, as well as products like books and a nutraceutical business.
The company has been around since 1998 as a digital media company, but its cable network got off the ground in 2014. It rose to prominence during the 2020 election cycle, and over the past five years, it has signed several important streaming deals that put its content in front of its target audiences.
It has been demonstrating strong growth, powered in part by the resurgence of the Republican party in the 2024 elections. It's now the fourth-highest-rated cable news network as well as the fastest growing, and it's the fifth-highest-rated network on weekdays in all of basic cable. In 2024, its total viewership increased by 22%, while weekend watchers increased by 48%. It reaches 60 million homes through its TV networks and 20 million on social media, and it had a record 33.6 million viewers in the first quarter, up 50% year over year. Among news companies, it has the highest social interaction rate per follower on Meta Platforms' Facebook and Instagram, as well as X. Its rates in 2024 were 241% higher than Fox News.
Newsmax has also been cementing new relationships to grow its brand, viewers, and followers. It recently signed distribution deals with networks in Armenia and Israel, and it's bringing new voices into its media to drive more engagement.
These are impressive stats, but they coincided with President Donald Trump's second inauguration and a Republican takeover of both the House and the Senate. The political scene has been unusually eventful, leading to increased interest in conservative politics. That's likely to persist in the current quarter.
However, the company's financials were mixed in the first quarter. In its first earnings report as a public company, Newsmax revealed that its revenue had increased by 11.6% year over year to $45.3 million, mostly driven by ad revenue. It also booked a net loss of $17.2 million. Newsmax isn't a new company, so its red ink on the bottom line is concerning. And I'd be concerned about the revenue-generating opportunities, considering that it's hitting new highs in viewership. It could very well continue to rise as its content resonates with its target audience, but I'd need to see that before concluding that this is an investment-worthy stock.
In other words, the upside could be limited here -- partially because it takes strongly partisan stances that will only appeal to a certain portion of viewers and partially because its viewership might wax and wane with the public's interest in politics.
Newsmax is courting a large fraction of the U.S. public that finds its content resonant. It's strengthening its brand across content channels and regions, which could give it staying power past the current news cycle. However, there are risks in its limited viewership and seasonal news cycles.
There's another factor weighing against it, too, and that's its expensive price tag. Even after its plunge back toward its IPO price, Newsmax trades today at a price-to-sales ratio of 11, which is a rich valuation for a company that's reporting 12% sales growth and booking net losses.
Newsmax could be an interesting stock to watch, but it doesn't look like a buy at today's prices.
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Down More Than 90% From Its All-Time High, Is Newsmax Stock a Buy on the Dip or an Investment to Steer Clear of? was originally published by The Motley Fool