Naked Brand Foods Group (NASDAQ:NAKD) stock has been terrible, there’s no other way to put it. NAKD stock is down 98.5% over the past year and 99.8% over the past two years. It has led to one of the worst charts I have ever seen.
The apparel company has gone through what I call “reverse split hell,” essentially doing everything it can to keep its stock price above water and avoid being delisted from the stock exchange.
Currently (and perhaps surprisingly), shares are still above $1, although that’s the point of a reverse split.
NAKD stock underwent a 1-for-40 split in August 2015, a 1-for-5 split in June 2018, a whopping 1-for-100 split in December 2019. It’s whittled the market cap down to less than $5 million as NAKD stock falls further and further off the radar.
So what should investors do with the stock? Nothing. Absolutely nothing. They should leave it be and let it serve as a lesson for what happens when investors let losses run unchecked.
NAKD Stock Chart
A look at the chart shows just what I’m talking about. Is this not one of the worst charts you’ve ever seen?
On a split-adjusted basis, the stock peaked at more than $1,100 per share and is now trading for close to $1. When you have the kind of action, the equivalent of a $100 stock falling to about 14 cents, it’s the red flag of red flags.
Some penny stock investors may be tempted to buy shares at $1.20 and flip it at $1.50. Or double their money on a possible rally to $2-plus. I can’t say that action is impossible, but I sure wouldn’t put my hard-earned money on it happening.
These trades are erratic and volatile, with little predictability. It’s also a gigantic red flag regarding the fundamentals, meaning a company with solid fundamentals would not have a chart like this.
Dabbling with a name like NAKD is not investing or trading in my mind. It’s a risky gamble. It ignores both the technical and fundamental discipline that traders and investors need to maintain in order to enter favorable setups. It’s not that the stock can’t double from this level, it’s that the current setup does not suggest a position is a good idea.
Bottom Line on Naked Brands
Revenue continues to sink with first-half sales falling more than 25%, while losses continue to erode the financials. As one might expect, the balance sheet is a disaster too.
Current liabilities are nearly triple current assets, while total assets barely edge total liabilities. The former suggests the company will have trouble meeting its short-term obligations, while the latter suggests its long-term obligations will be hard to meet without an improvement in cash flow or operating income. Clearly that’s not happening anytime soon.
While Naked Brands announced a divestiture this week, it feels like too little too late. At least when it comes to investing in the common stock.
So what should investors do? If you’re not already holding a position, I would consider Naked Brands a learning opportunity; and one that can hopefully teach investors the dangers of holding onto a loser for too long before they actually experience it for themselves.
On Wednesday, NAKD stock made a new all-time low. Literally any investor who has bought the stock and held until Jan. 22 has lost money. Most would have lost nearly every cent invested.
Whether you are a fundamental investor, a technical trader or a blend of both, Naked Brand highlights why stop losses are not just important, but vital. Imagine owning the stock with a 20% stop loss, and while painful to take, avoiding a total wipeout in the name. I wouldn’t view that as a 20% loss, I’d view it as saving 80%.
There are two ways to learn: from others’ mistakes or your own. The former is much less painful.