New Zealand-headquartered intimate apparel and swimwear retailer Naked Brand Group (NASDAQ:NAKD) might seem like a “sexy” investment opportunity. After all, NAKD stock is extremely cheap nowadays.
Some contrarian-style traders might see NAKD stock as an outright bargain. Value investors are trained to buy low and sell high. At a very low price, NAKD fulfills the first part of that equation.
On the other hand, the second part of the formula requires that traders would sell NAKD stock at a higher price at some point in the future. And there’s no guarantee of price appreciation in this highly risky stock.
This begs the question of whether folks would be willing to stock up on lingerie during this rather unusual holiday season. In the wake of the novel coronavirus pandemic, there may be questions about whether NAKD stockholders are well positioned, or just fully exposed.
A Closer Look at NAKD Stock
InvestorPlace contributor Ian Bezek deftly managed to cram several years’ worth of NAKD stock’s price action into a few sentences. I’ll let Bezek take it from here:
“[NAKD stock] shares have plummeted from $6 to just 20 cents since last October. Zoom out and it’s even worse. As recently as 2017, NAKD stock was still worth $1,000 per share on a split-adjusted basis. Since then, shares are down more than 99%.”
So, what does NAKD stock look like after a multi-year 99% decline? On Oct. 16, for no discernible reason that I could find, NAKD fell 10.55% to land at approximately 10 cents per share.
In other words, NAKD stock is certainly cheap, but it’s only been getting cheaper lately. And, as you can tell from the price drop of Oct. 16, NAKD is a fast mover and should only be traded by folks who can tolerate volatility.
Still, practically any stock is capable of turning around. So, let’s see if this is an appropriate time to do some bargain hunting with NAKD stock.
I Called It Wrong
It’s time for me to indulge in a confession of my sins. On Sept. 9, I recommended a small long position in NAKD stock.
I sincerely hope that you didn’t lose your shirt on that call. At least I can honestly say that I only advised picking up a few shares.
Much better judgment was shown by my InvestorPlace colleagues, such as Josh Enomoto, who wisely stated that “Naked Brands is almost completely irrelevant”; Thomas Neil, who incisively called NAKD stock “too risky to buy, too risky to short;” and Chris Markoch, who correctly forecast that the stock is “going nowhere fast.”
Honestly, I should have seen the red flags. On the quarterly reports page within Naked Brands’ investor relations site, no filings are to be found. That’s certainly not a good sign.
Sales Up, Stock Down
The most recent annual report news release that I could find on the Naked Brands investor relations site was posted back in May. This proclaimed that Naked Bands had cash and cash equivalents of $2.5 million as of Jan. 31.
This isn’t something to brag about. It’s an indication that Naked Brands was cash-poor and had a terrible balance sheet even before the coronavirus pandemic reached the United States.
So, could the upcoming holiday season induce a turnaround for Naked Brands? I wouldn’t count on it. Interestingly, pandemic-driven lockdowns have bolstered lingerie sales in 2020. As author Michael Castleman explains, “with so much of the economy closed down, many people’s erotic fantasies have turned to greater openness.”
Yet, the uptick in lingerie sales hasn’t helped long-term shareholders at all. The share price remains in the proverbial gutter. I expect that if a sector-wide boom hasn’t helped NAKD stock by now, 2020’s fourth quarter won’t bring any miracles.
The Bottom Line
I botched the call on NAKD stock, and I’m glad to admit my error. Feel free to heed the sage advice of my colleagues at InvestorPlace and avoid NAKD even as the broader lingerie market benefits from the pandemic.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
