Intimate apparel maker Naked Brand Group (NASDAQ:NAKD) is another one of those low-priced names – 63 cents at the June 29 open – that some investors become interested simply by way of the paltry price tag. But NAKD stock just isn’t worth the trouble for most market participants.
Recent price action in the name is actually deceiving. One might think a 26% gain over the course of the second quarter is reason to get involved, but remember, that surge took Naked to the aforementioned 63 cents and a whopping (insert sarcasm here) market capitalization of $4.5 million.
Low prices often lure investors, but more often than not, those scant price tags are warning signs. For starters, support for a stock trading at, say, 63 cents, is going to come largely from retail investors. The reason for that is many fund managers are prohibited from owning stocks trading below $5 or $10, let alone sub-$1 fare.
Second, the major exchanges – Nasdaq composite and the New York Stock Exchange – have listing requirements and stocks can’t be dwelling below $1 for too long before the exchange operators threaten delisting, a scenario Naked Brands is dealing with.
Last month, the company received a letter from the listing qualifications department of the Nasdaq Capital Market notifying NAKD that its stockholders’ equity was below $2.5 million, and that it didn’t meet the minimum stockholders’ equity required for continued listing, according to a statement.
Not Much to See Here
Naked has until June 29 to submit a compliance plan to Nasdaq, If the proposal is accepted, the exchange operator will give the company another 180 days to meet the minimum shareholder equity requirement.
Even if Naked can survive exile to the pink sheets or over-the-counter trading, this is still a fundamentally challenged company with limited catalysts.
As I said in the headline, let’s be adult about this and we can get into that part of that conversation now. Don’t worry, I’ll try to keep it as family-friendly as possible. The reality is Naked makes men’s and women’s intimate apparel. I don’t speak for all men, but I’m 42 years old, been married and had my share of serious relationships over the years. Point is I’m not sure what exactly constitutes men’s intimate apparel. Silk boxers? Last time I had a pair, Bill Clinton was president.
Even if there is a robust market for men’s intimates, Naked has another adult-related problem. The stock performed terribly during the novel coronavirus economic shutdown when so many people were sheltering in place, not going out on the weekends and working from home. For couples, that would certainly increase the access and time for “fun,” potentially boosting demand for related clothing, but Naked stock didn’t reflect that theme.
If another shutdown comes to pass and stay-at-home policies are renewed, there are dozens of better investment ideas than Naked and recent history proves as much.
Bottom Line for NAKD Stock
Assume for a moment that I’m wrong and during the Covid-19 quarantine couples were eschewing intimacy. Hard concept to grasp, but work with me here.
Even it’s true, that’s not excuse for Naked’s equity failings. In fact, data confirm the global lingerie market is growing. This year’s sales are expected to be $32.07 billion before flirting with $50 billion in 2025, according to Statista.
That’s not cloud computing or online gaming type growth, but it’s still growth and Naked stock isn’t responsive to that positive trend. That should be all investors need to know about how the market values this company’s prospects.
Todd Shriber has been an InvestorPlace contributor since 2014. As of this writing, he did not hold a position in any of the aforementioned securities.