1 Reason Why I Can't Bring Myself to Touch Newsmax Stock With a 10‑Foot Pole
Key Points
Newsmax was briefly a meme stock went it went pubic last March, but since then, the conservative media stock has fallen back to below its IPO price.
Even at current price levels, shares remain overvalued. This points to further downside ahead, if profitability and growth issues persist.
Unless Newsmax tries to capitalize on its rich valuation, such as using it as a means to make stock-based acquisitions, irrespective one's politics, I would stick to the sidelines with this stock.
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Unless you are a Washington insider, mixing politics and investing seems like a recipe for disaster. Primarily, this is because it appears that politics and market psychology often skew valuation in many of these stocks. Newsmax (NYSE: NMAX) is a great example of this phenomenon in action.
Newsmax became one of the meme stocks after its initial public offering (IPO) and soared to prices that failed to correspond with the company's underlying value. Even as this meme wave has come and gone, and shares now trade below their initial price, valuation remains skewed.
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Unless the company starts using this rich valuation to its advantage, giving it a hard pass seems to be the best course of action.
Image source: Getty Images.
The rise and fall of meme mania for Newsmax
On March 31, 2025, Newsmax went public. Surprisingly, the company didn't make its stock market debut by going the special purpose acquisition company (SPAC) route, as a similar company, Trump Media & Technology Group, did in 2024.
Instead, Newsmax completed the IPO via Regulation A+, enabling accredited and non-accredited investors to buy. This approach may have played a big role in the stock's post-IPO meme wave.
On its first day of trading, shares surged over eightfold, closing at $83.51 per share. The next day, shares rose by another 179%, closing at $233 per share, but briefly trading as high as $265 per share. Since then, however, the stock has coughed back all, and I mean all, of these gains.
Flash forward to now, and the stock trades for just over $9 per share, about 10% below its debut price. Yet even at today's prices, shares are far from a bargain.
Valuation is a major concern
As the company is not yet profitable, it's challenging to value Newsmax using metrics such as a forward price-to-earnings (P/E) ratio. However, we can assess the company's value on an enterprise-value-to-sales (EV/sales) basis.
Currently, Newsmax has a market cap of $1.18 billion. The company's enterprise value, calculated as market capitalization plus debt minus cash, is approximately $1.05 billion. Analyst estimates project revenue of $206 million for next year, implying a forward EV/sales ratio of approximately 5.1.
Compare that to news-focused media stocks like Fox Corp., which trades at an EV/sales ratio of 2, or Sinclair, which trades at an EV/sales ratio of 1.45.
Why it is best to stay away
Although Newsmax is a smaller, faster-growing company, projected growth for next year is only moderately high, at 13.8%. Furthermore, earnings forecasts anticipate the company to achieve near-breakeven profitability in 2027, with earnings per share (EPS) of just $0.12 in 2028. In the years ahead, if a move to profitability doesn't happen quickly, the stock could experience further multiple compression.
Perhaps Newsmax could capitalize on its high stock price by making stock-based acquisitions of smaller, yet profitable competitors, such as Salem Media Group. However, to say that the company will pursue methods outside of organic growth remains speculative. Until valuation becomes more reasonable, consider it best to stick to the sidelines with Newsmax.
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Thomas Niel 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.
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