Newsmax Stock Is Set to Join the U.S. Small-Cap Russell 2000 Index in Less Than a Month. Time to Buy?

Newsmax (NYSE: NMAX) has only been a publicly traded company for a couple of months, but it's stuffed a lot of excitement into a short period of time.

After pricing its shares at $10 on March 31, the stock skyrocketed to $233 over a two-day trading frenzy before plunging back down to earth.

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A limited float, high demand, interest in a conservative media brand, and the meme stock effect all combined to send the stock briefly soaring.

Since then, Newsmax has gradually declined, closing at $18.09 a share on June 4, though that's still up more than 80% from its IPO price.

However, Newsmax shareholders did get some good news recently. The stock is set to join the small-cap Russell 2000 index at the end of the month, meaning that exchange-traded funds (ETFs) that track the index will have to buy shares of Newsmax, which should help boost the stock price.

With Newsmax getting some recognition from the best-known small-cap index, it's a good time to ask if the stock is worth buying. Here's what you need to know about Newsmax.

Image source: Getty Images.

All about Newsmax

IPOs for traditional media companies aren't particularly common in the current era, but Newsmax seemed to see an opportunity to capitalize on interest in conservative media brands in the wake of President Donald Trump's election, and it has so far paid off.

In addition to the core broadcasting business, which includes two linear cable channels and a streaming channel, Newsmax also has a digital business, Humanix Publishing, that includes a print and e-book publishing house; Medix Health, which sells 22 nutraceutical products aimed at Newsmax's demographic; an advertising and media strategy business; and an insurance agency, Crown Atlantic Insurance, that primarily sells life insurance and retirement solutions like annuities.

As a business, Newsmax's growth has been surprisingly strong; total revenue rose 26% last year to $171 million. Advertising revenue, which makes up the majority of its revenue, was essentially flat, but revenue from affiliate fees surged due to new contractual relationships that began in late 2023. On an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) basis, it flipped a $10.4 million loss in 2023 to a $10.3 million profit in 2024, due to strong performance in the broadcasting division.

Newsmax is now the fourth-highest-rated cable news channel in the U.S., and had 33.6 million viewers in the first quarter. Revenue rose 12% in the first quarter to $45.3 million.

Newsmax aims to grow in a number of ways, including expanding the Newsmax audience, growing its premium content to build its subscription business, and expanding its television and digital offerings.

Is Newsmax a buy?

Even with some impressive audience growth numbers, including a 50% jump in viewers in the first quarter, traditional television media is a tough sell in this day and age, and Newsmax seems destined to fight an uphill battle even if the political climate remains favorable.

For example, viewership could have jumped in the first quarter due to the inauguration or interest in Trump. Investors shouldn't assume that that growth rate is sustainable over the long term.

The company's lack of a generally accepted accounting principles (GAAP) profit is also concerning; it lost $72.2 million last year, though that was due in part to a one-time net costs increase of $53 million related to legal fees for the settlement of the Smartmatic lawsuit. In the first quarter, it lost $17.2 million. Additionally, the timing of the IPO, when there was considerable interest in Trump and related businesses, won't help the business over the long term.

Overall, Newsmax could be successful despite the larger media industry headwinds, but the stock isn't even an attractive value right now, trading at a price-to-sales ratio of 14.

At a better valuation and with a GAAP profit, Newsmax might be worth taking a small position in. While gaining admission into the Russell 2000 is a step in the right direction, it's not enough to make the stock a buy.

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Jeremy Bowman 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.