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No Market Share Makes Naked Brands a Bad Bet

The Securities and Exchange Commission will give Naked Brands (NASDAQ:NAKD) a chance at avoiding delisting. And it seems that this is giving speculative investors (I might call them gamblers) a few more months to spin the wheel on NAKD stock.

a man and woman wear plain white underclothes from Naked Brand (NAKD)
Source: Shutterstock

If that’s your jam, I’m not here to stop you. The simple fact is that staying listed does not end the problems for Naked Brands. It also needs to be said that the company’s problems are not new. The pandemic hasn’t helped.

But this is a company that was facing long odds well before that.

Grabbing a Small Slice of a Big Pie

I’ve written about Naked Brands a couple of times since the pandemic began. In both cases, I’ve come away with a variation on a similar theme. For me, it comes down to market share, or in the case of Naked Brands, lack of it.

In July I wrote, “it has to work harder to build its brand, and it doesn’t seem like a company that has the energy or the time to do that.”

And I followed that up in November by saying, “This is not a niche market and Naked Brands has many competitors. All of which creates a bleak outlook for NAKD stock.”

But don’t take my word for it. In 2018, Credence Research cited that revenue for the global lingerie market was valued at almost $38.7 billion in 2017. And the market was expected to grow at a compound annual growth rate (CAGR) of 4.5% through 2026.

I wanted to start with a global figure because Naked does a good bit of its business in Australia and New Zealand. However, Naked Brands has an online presence in the United States. Statista forecasts the U.S. lingerie market to reach $11.36 billion by 2025.

The reason I bring this up is because, even with the effects of Covid-19 that impacted sales in 2020 and will likely impact sales in 2021, Naked Brand has not been a significant player.

In fact, InvestorPlace’s Lou Carlozo dropped this little statistic about the company’s declining sales. Naked Brands sits fiscal year 2020 net sales drop by 20% ($58.5 million from $72.7 million).

And that’s the real problem with any bullish narrative for NAKD stock.

Surviving Is Different Than Thriving

It’s possible, even likely, that Naked Brands will avoid having its stock delisted. And when that happens, most likely by way of a reverse merger, there may be interest for some bullish investors. However, as our Ian Bezek wrote, a reverse merger won’t be a positive for shares:

More likely, however, the company will elect to enact a reverse stock split to get shares out of penny stock territory. That, in turn, would likely cause negative pressure on the share price.

And again, the reverse merger is not a death sentence. But if you’re going to invest in NAKD stock, the company should give you more than a survival narrative. There has to be genuine hope for growth.

Stay Away From NAKD Stock

I suppose an investor may argue that things can’t get any worse for Naked Brands. Maybe as the pandemic begins to turn into a truly more normal reality, there will be a demand for lingerie. Should that emerge and the company manages to survive, it may be able to limp along. And if that happens, buying some shares of NAKD stock on the cheap could give you a short-term profit.

That’s a lot of things that have to go right. And as I said earlier, that’s not for me. The juice simply isn’t worth the squeeze.

The lack of a genuine revenue narrative makes me advise caution.  If you want to buy NAKD stock, be advised that it still has a chance to go to zero. In fact, Mark Hake recently wrote that his analysis suggests that the stock has a 30% chance of going to zero. But I know that short-term traders don’t need more than a glimmer of hope.

It’s your choice, but I see NAKD stock as an emperor that has no clothes.

On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for Investor Place since 2019.

Article printed from InvestorPlace Media, https://investorplace.com/2021/01/nakd-stock-lacks-market-share/.

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