In a relatively quiet year for IPOs, Newsmax (NMAX -7.88%), the conservative media network, has gotten a lot of attention.
Newsmax stock initially soared out of the gate, jumping to $265 a share on April 1, the day after its IPO. It surged because of a limited float in the offering, and a perception that the stock would benefit from the Trump administration, as its politics and media coverage are aligned with President Donald Trump.
Since then, the stock has gradually faded, and it now trades just above $12 a share, hovering near its all-time low.
Now that the initial euphoria from its debut has passed, is Newsmax a buy? Let's take a closer look at the key details.
Image source: Getty Images.
What NewsMax offers investors
The landscape for digital media companies has been challenging for years. People have plenty of places to get their news and entertainment, and it's been difficult to find growth.
Despite the weakness in the industry, Newsmax seems to be outgrowing its peers based on its latest results.
In the first quarter, the company reported revenue growth of 11.6% to $45.3 million. This shows that Newsmax is still a small company, even though it's the fourth-highest-rated cable news channel, with more than 33 million quarterly viewers.
Growth was balanced across advertising, affiliate revenues, and subscriptions, though advertising made up nearly two-thirds of total revenue.
Newsmax reached a record of 33.6 million viewers in the quarter, up 50% from the quarter a year ago, though that may be a response to Trump's inauguration and the beginning of his term more than anything that Newsmax is doing.
The company also saw strong growth in social media, topping 20 million combined social media followers.
On the bottom line, Newsmax reported an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) loss of $1.2 million, down from a profit of $3.2 million in the quarter a year ago, due to costs associated with the IPO and covering Trump's inauguration. On a generally accepted accounting principles (GAAP) basis, the company reported a loss of $17.2 million in the quarter, or $0.49 per share.
Newsmax sees a number of opportunities for growth, including in both linear and digital channels like streaming. It also has a small product business, selling promotional products through its advertisements.
Newsmax's financials
After pulling back, Newsmax stock is trading at a more reasonable valuation, but the company is still unprofitable and has a price-to-sales ratio of 9.
As a cable news company, Newsmax's closest peer on the stock market is probably Fox Corporation, which owns the Fox News channel, Fox Sports assets, and the flagship Fox broadcast network. Fox is profitable and trades at a price-to-earnings (P/E) ratio of 14 and a price-to-sales (P/S) ratio of 1.6.
To use another example, Sinclair, which owns local television stations, is even cheaper. It's trading at a P/E of 7 and a P/S of just 0.3, indicating general pessimism about the local television market.
Is Newsmax a buy?
Typically, high-profile IPO companies hail from the tech sector or represent another fast-growing industry. Newsmax, on the other hand, represents an industry that has struggled to grow in the face of tech disruption.
Newsmax's IPO may have been timed to take advantage of the interest around Trump, but that seems to have faded. Its double-digit revenue growth is encouraging, but the stock is still much more expensive than its peers, and it's losing money.
At this point, Newsmax still isn't a buy. If its bottom line improves or its valuation falls, that could change, but for now, investors are better off avoiding the stock as the company works through those typical IPO issues.
