It has continued to be a hot stock market in 2021. But if you’re thinking of taking the plunge in Naked Brand Group (NASDAQ:NAKD), be aware that you’re swimming against a treacherous tide in more than one way. Let’s take a look at what’s happening off and on the price chart of NAKD stock, then offer a risk-adjusted determination aligned with those findings.
“Gamestonk!!” Or rather GameStop (NYSE:GME). It was the brick-and-mortar video game retailer that started a crusade of sorts in heavily-shorted stocks this past month. The craze pitted David versus Goliath, or rather retail investors turned swashbuckling speculators, in heavily-shorted stocks against much larger professional funds betting against those companies’ shares.
For a brief time Wall Street’s gripping saga overtook updates on Covid-19 or Mother Nature wreaking havoc from coast-to-coast. Shares of GME went from less than $45 to nearly $500 at their best in five trading sessions. But I’m confident you knew that already. The powerful tide even lifted shorted peer Koss Corp (NASDAQ:KOSS) to roughly 3,700% in less than a handful of days, as the stock bolted from less than $3.50 to nearly $130. Shares of AMC (NYSE:AMC) saw gains approaching 500%. Revlon (NYSE:REV) enjoyed a trendy move of around 100%. And now NAKD?
Personally, I’d warn against taking the plunge in Naked Group. Buying what’s trending on brokerage Robinhood or fraternizing on Reddit’s r/WallStreetBets forum for stocks to purchase isn’t due diligence when it comes to investing. Worse, the highly-speculative short squeeze thematic trade NAKD is inexorably linked to has already seen vastly diminishing returns and worse.
Back to GME and its compadres. Those same heavily-shorted stocks have unmercifully crushed Wall Street’s David. GME is off almost 90%. Likewise, so are shares of KOSS. AMC has seen bulls run for the exits to the tune of 70%. You get the picture.
To be fair, both bulls and bears also made money in GME, KOSS stock and other heavily-shorted stocks. Traders simply couldn’t overstay their welcome without being bludgeoned. And to be frank, that’s not unlike what happens on any given day in even the largest companies in the world like Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT) or Home Depot (NYSE:HD). But make no mistake, NAKD is no AAPL stock to own for the long haul.
NAKD Stock Daily Price Chart
Source: Charts by TradingView
Naked Brand Group has been around the proverbial block. The company was founded in the 1940s. It’s also enjoyed some notoriety over the years with licenses from Frederick’s of Hollywood and Heidi Klum. I suppose that’s the good news. More importantly, today’s NAKD stock is part of a pool of mostly underwater, financially riskier companies. This past November the outfit did file a Form 6-K with the SEC to that affect.
Could Naked Brands be a turnaround play? InvestorPlace’s Mark Hake believes in NAKD’s potential. But honestly, its time to accept a spade as simply a spade. And in today’s game being played, NAKD is a stock trying to be muscled into a lower float, short squeeze by late-to-the-party bullish speculators.
Hopefully, you don’t need a professor from Carnegie Mellon’s business school to point out what buying a stock like NAKD means as a standalone investment strategy for long-term returns. Not much of course.
But if you’re inclined, have the stomach and funds available for this type of trade, 30 to 35 cents of downside technical risk could modestly dress up the portfolio in the days and weeks ahead. But months and years? That’s likely another story entirely.
On the date of publication, Chris Tyler does not hold, directly or indirectly, any securities mentioned in this article.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. The information offered is based on his professional experience but strictly intended for educational purposes only. Any use of this information is 100% the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.