Thinking About Buying Newsmax Stock? Read This First.

Investors in Newsmax (NYSE: NMAX) have quickly learned why initial public offerings (IPOs) are notoriously risky, often experiencing dramatic swings in share price in the first few months of trading.

The conservative-leaning media outlet went public on March 31 at an IPO price of $10 per share, skyrocketing 2,550% to a high of $265 by the next day. Those gains proved short-lived as the stock has since crashed to under $15 and is down more than 90% from its recent highs as of this writing. Yet, despite the extreme volatility, Newsmax is generating solid business growth, with a promising long-term outlook.

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Does the recent sell-off make the stock a compelling buy-the-dip opportunity? Here's what you need to know before rushing out to buy shares of Newsmax.

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A major media market opportunity

Newsmax has emerged as a content juggernaut, capitalizing on a growing appetite for cable news and political commentary across its robust media ecosystem. A focus on traditional family values with an America-first editorial direction has appealed to a large segment of the U.S. population, particularly conservative voters amid Donald Trump's political rise.

The company says it now has more than 33 million viewers on its television news channel and a streaming audience numbering 15 million. It also has a broader presence, with online and print publications, radio, and podcasting -- all leveraging its unique brand and loyal following.

Newsmax sees a significant opportunity to capture market share from legacy cable news giants such as CNN (a subsidiary of Warner Bros. Discovery) and Fox, which have struggled with ratings in recent years. The company's success from here will be measured by its ability to keep viewers engaged and monetize its expanding reach.

Mixed trends to start 2025

The first-quarter update from Newsmax underscored its impressive operating momentum with a record 33.6 million viewers, up 50% from the same period last year, reaffirming its claim as "America's fastest-growing news network." On the other hand, the financial trends are messier.

Revenue of $45.3 million increased by 11.5% year over year for the period ended March 31, but marked a deceleration compared to the 26% annual increase for full-year 2024. Even as Newsmax has managed to drive core advertising sales higher while posting growth in its ancillary businesses -- such as subscriptions and affiliate program revenue -- profitability remains elusive. The first-quarter net loss of $17.5 million added to the $72.2 million net loss in 2024.

Management cited costs associated with the IPO and expenses related to special coverage of President Trump's inauguration in January. Newsmax ended the quarter with $127 million in cash on its balance sheet, which provides ample near-term liquidity but may require added financing in the coming years to support its expansion strategy.

Ultimately, the company has a lot of work to do to achieve consistently positive net income, as financial uncertainties are reflected in a volatile stock price.

Reasons for caution

Following the breakout year for Newsmax in 2024, leading up to the recent IPO, its main challenge will be maintaining rapid audience growth while navigating a highly competitive media landscape. Historically, election years are a boon for television news coverage and related advertising, which means Newsmax will face tough year-over-year comparisons over the next several quarters.

More pressing for investors is the need to reconcile Newsmax's lofty valuation. With a current $1.7 billion market capitalization, shares are trading at a price-to-sales ratio (P/S) of 10.7, representing a large premium to the broader market and its larger media rivals, including Fox at a P/S of 1.4 and Warner Bros. at 0.6.

It seems like the market has baked in Newsmax's growth potential far into the future. Investors will need to balance the risk that future results underwhelm, forcing a reset of expectations and opening the door for a deeper sell-off.

The big picture for investors

With its unique profile, Newsmax is an exciting addition to the stock market and media landscape.

Nevertheless, the company still has a lot to prove, and shares may be too expensive to buy with conviction today. I expect the stock to remain under pressure until there are clear signs of an improving earnings trajectory. Investors should be able to find better opportunities with a superior combination of growth and value elsewhere.

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Dan Victor has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Warner Bros. Discovery. The Motley Fool has a disclosure policy.