When a company receives a warning notice from the Nasdaq Exchange, that’s typically not a good sign. Intimate apparel and swimwear retailer Naked Brand Group (NASDAQ:NAKD) received this type of warning, and as a result, few commentators are willing to defend NAKD stock as a worthy investment.
I totally see where they’re coming from. And to be honest, I can’t blame my fellow InvestorPlace contributors for leaning bearish on NAKD stock.
To give you a few examples that are definitely worth checking out, Josh Enomoto stated that “Naked Brands is almost completely irrelevant”, Thomas Neil called NAKD stock “Too risky to buy, too risky to short”, while Chris Markoch forecast that it’s “going nowhere fast.”
For all I know, they could be 100% correct in their assessment of NAKD stock. That being said, my contrarian instinct is tingling and something about Naked Brands makes me want to recommend it for a small, all-or-nothing position.
A Closer Look at NAKD Stock
When a stock plummets from triple digits to less than $1 in less than two years’ time, there are two ways to look at it. The most sensible viewpoint would probably be to just avoid NAKD stock as the bulls have absolutely capitulated.
Alternatively, traders can see this situation as a rare contrarian buying opportunity. It’s the type of investment where you can buy a few hundred shares and store them away for a few years, and then check to see if you gained 10X or lost everything.
This is only for risk-tolerant folks who fully understand that NAKD stock could easily go to zero. On the other hand, I firmly believe in buying during times of maximum fear and pessimism. And there’s no doubt that the pessimism surrounding NAKD is at peak levels in 2020.
A Warning and a Second Chance
It’s no secret that Naked Brands received a warning from Nasdaq regarding the company’s noncompliance with listing requirements.
Reportedly, the issue was the Naked Brands’ stockholders’ equity fell below $2.5 million. Moreover, the company failed to meet the “alternative standards for market value of listed securities or net income.”
Naked Brands was consequently given until June 29 to submit its plan to regain compliance. Thankfully, soon afterwards Nasdaq granted the company an extension to Nov. 10 to regain compliance.
So, Naked Brands still has a lifeline for the time being. If the company manages to regain compliance within the given time frame, this could cause the NAKD stock price to spike. After all, few things will catalyze a stock price more than unexpected good news.
The Ultimate Covid-19 Stock?
When people bet on the nation’s recovery from the novel coronavirus, they sometimes refer to “coronavirus stocks.” These could be stocks in the cruise line, airline, biotechnology or other sectors.
But just imagine how a beaten-down asset like NAKD stock could be impacted if an effective Covid-19 vaccine were to be discovered. The surge in the share price could be tremendous. You could literally see your investment grow several-fold in a matter of weeks.
Is this merely a pipe dream? Not necessarily. Consider the potential pickup in the intimate apparel business if a vaccine is made available to the public. A relaxing of social distancing measures would undoubtedly boost sales for Naked Brands.
The next thing you know, there could be a spike in the NAKD stock price. What might follow is a pile-on by Robinhood traders as they frenetically bid the share price higher.
After all, we should never underestimate the Robinhood crowd’s willingness to turn lemons into lemonade.
The Bottom Line
So there you have it: a bullish argument for NAKD stock. Please enjoy it, as you won’t see many of these. And if you decide to jump into this trade, please use a very small position size – and thank me later if you beat the odds and become a millionaire.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
