Extremely risk-tolerant folks might look at intimate apparel and swimwear retailer Naked Brand Group (NASDAQ:NAKD) as a company worth investing in. After all, NAKD stock is quite cheap and there’s a tendency for low-priced stocks to pop from time to time.
However, being a low-priced stock isn’t necessarily a good thing. There’s a certain stigma attached penny stocks – defined by the U.S. Securities and Exchange Commission (SEC) as stocks that trade under $5 per share.
I’m not saying that all penny stocks are bad. In fact, there are some perfectly good ones. Yet, investors must be extra careful when investing in penny stocks as sometimes they can go from cheap to de-listed or even nonexistent.
That might be the fate, unfortunately, for NAKD stock. It’s possible to find positive news for the stock if you dig for it. When it comes to NAKD, though, the good news might not be good enough.
A Closer Look at NAKD Stock
I’ve issued a warning about NAKD stock before, and so have other InvestorPlace contributors. Josh Enomoto stated that “Naked Brands is almost completely irrelevant”, Thomas Neil called the company’s stock “Too risky to buy, too risky to short”, while Chris Markoch forecast that it’s “going nowhere fast.”
In regard to the long-term price action of NAKD stock, Ian Bezek concisely summarized the ongoing train wreck.
“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%,” Bezek observed.
What might make this stock appealing to certain traders is its tendency to surge in price occasionally. For instance, there was the day in August when NAKD shares gained 48%.
The thing is, most days aren’t like that. As an example, on Dec. 11, NAKD stock closed down -4.6% and settled at approximately 16 cents. Days like that aren’t unusual at all for NAKD, so be prepared for rocky terrain if you’re going to take a ride with this fast mover.
Earnings Matter
Another notable feature of NAKD stock is that it has trailing 12-month earnings per share of approximately -$1.49.
That’s not a positive sign, especially for a stock that’s trading at around 16 cents a share. Granted, some speculators might consider NAKD to be the ultimate “vaccine stock.”
Perhaps they’re figuring that since the U.S. Food and Drug Administration authorized the use of Pfizer’s (NYSE:PFE) novel coronavirus vaccine for emergency use, it’s time to go all-in on stocks that got hit during the onset of the pandemic.
That’s an awfully risky proposition. Naked Brand Group will need to see a massive increase in revenue just to get the NAKD earnings per share into positive territory.
It requires a whole lot of faith to connect the dots between the arrival of a Covid-19 vaccine and shoppers suddenly scrambling to buy intimate apparel.
The Nasdaq Threat
Getting de-listed from the Nasdaq Exchange would be bad news for NAKD stock and its owners. Being relegated to the over-the-counter markets would generally be considered a demotion.
The Nasdaq Exchange has a requirement that listed stocks must maintain a minimum $1-per-share bid price. Clearly, NAKD stock is below that threshold.
On Nov. 27, Naked Brand Group was “granted an additional 180-day period, or until May 24, 2021, to regain compliance” with Nasdaq’s minimum-$1-per-share rule.
Should NAKD stock holders be celebrating? Maybe, but this is really just a temporary lifeline. It is true that the stock will be considered compliant if it maintains a price of at least $1 per share for 10 or more consecutive business days.
There’s no assurance that this will happen, though. And even if such a miracle does take place, NAKD stock could fall back out of compliance later on. With such poor earnings, it shouldn’t be too shocking if Naked Brand Group repeatedly disappoints its stakeholders.
The Bottom Line
For all I know, NAKD stock could regain compliance with Nasdaq listing requirements and remain compliant for the long haul.
Yet, I wouldn’t count on that happening. Miracles do happen in the markets, but usually they’re not worth betting your hard-earned investing capital on, and NAKD stock is no exception.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.
