To paraphrase legendary investor Warren Buffett, price is what you pay, but value is what you get. Consider intimate apparel maker Naked Brand (NASDAQ:NAKD) a crystal clear example of this principle. Just because NAKD stock is cheap, doesn’t mean that shares are a good value buy.
In fact, I hate to say it, but long-term investors in NAKD stock may have to accept the possibility that they will never recoup their losses. NAKD was an absolute train wreck even prior to the onset of the novel coronavirus. And Covid-19 made a bad investment even worse.
According to the definition provided by the U.S. Securities and Exchange Commission, NAKD is a penny stock because it now trades under $5. However, it’s not inconceivable that NAKD stock could trade for literal pennies in the future.
NAKD Stock at a Glance
With all that said, while it’s certainly a bad idea to own NAKD stock, it’s also risky to short-sell it. Very cheap stocks can have the occasional violent price spikes. I wouldn’t want you to get caught in one of those and end up on the receiving end of a broker’s margin call.
On the other hand, it seems almost inevitable that any price surge in NAKD stock will be short-lived. NAKD’s price history really breaks your heart. Just in 2020 alone, the stock has fallen from $1.71 at the beginning of the year to less than 20 cents.
With the stock trading at that price point, it’s scary to consider that NAKD’s trailing 12-month earnings per share is -$106.87. That’s a deep fiscal hole for the company to dig itself out of. Again, the distinction between price and value is important here.
Time Is Running Out
Earlier this year, Naked Brands received a warning from the Nasdaq Exchange regarding the company’s noncompliance with listing requirements. There were two problems with Naked Brands. First, company stockholders’ equity fell below the $2.5 million mark.
Second, Naked Brands did not meet the “alternative standards for market value of listed securities or net income” established by the Nasdaq Exchange.
With that, Naked Brands was given until June 29 to submit a plan to regain compliance with Nasdaq’s listing requirements. Not long afterwards, Nasdaq extended the deadline to November 10.
That was a while ago, and everyday the clock keeps ticking. I suppose it’s possible that Nasdaq would grant Naked Brands another extension. Then again, maybe they won’t. Either way, it’s a sign that NAKD stock is basically on life support.
No Filings, No Confidence
On Sept. 14, 2020, I took a glance at Naked Brand’s investor relations page to check out the company’s quarterly reports.
There’s literally nothing listed there. Is the company’s website tech support team to blame for this? Or is the company ashamed of its financials?
It’s difficult to have confidence in a company that makes it a challenge to find its fiscal data. I looked elsewhere and finally located Naked Brand’s most recent financial stats. And the numbers didn’t present a positive outlook.
For fiscal year 2020 (ended Jan. 31, 2020), the company’s net loss was 52.2 million NZD, or $33.9 million in U.S. currency. That compares unfavorably to fiscal 2019’s net loss of net loss of 49.2 million NZD, or $32 million.
Moreover, Naked Brand’s fiscal 2020 net sales totaled 90.1 million NZD, which would equate to $58.5 million. That’s far below fiscal 2019’s net sales of 111.9 million NZD, or $72.7 million.
The Takeaway
The data indicates that Naked Brand’s financials are in a state of decline. That, along with a dire warning from the Nasdaq Exchange, provide a compelling argument to avoid NAKD stock altogether.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
