The past year has been nothing short of a turmoil for Naked Brand Group (NASDAQ:NAKD). The apparel and swimwear company designs, manufactures and functions under a portfolio of licensed brands. NAKD stock was traded at a whopping $1,420 in 2017 and four years from the all-time high, it was traded lower than 10 cents.
The stock has gradually moved up in the past few months but has not been able to soar high. It is currently trading around 80 cents.
The stock soared for a short time due to the Reddit rally but as the stocks crashed, NAKD came down as well. I do not think the stock has the capacity to gain momentum and soar to new highs. It is best kept out of your portfolio.
Here are two reasons to stay away from NAKD stock.
Investors are concerned about the fundamentals and value of a company. If the company has strong fundamentals, it will show the potential to grow in the future. But with Naked Brand Group, it is not the case.
The company has reported net losses for the five years. The losses have only grown with each passing year. In 2016, the loss stood at $19.06 million and it reached $35.17 million in 2020. This is a clear sign of a massive decline in revenue led to a rise in the company losses.
Further, the company has reported negative cash flow for the past five years. It reported a negative cash flow of $15.08 million in 2020, which stood at $9.82 million in 2019. Taking a closer look at the balance sheet, one can’t help but notice the piling debt.
The company has a long-term debt of $24.21 million and a short-term debt of $12.43 million. With a cash balance of $2.45 million and accounts receivable of $3.92 million, there is no way the company will be able to make the debt payment. The downfall of the business and revenue consecutively for the past five years show that it is not a long-term play. NAKD stock could go further down in the future. If the debts are not paid in time, the company could end up in big trouble.
High Market Cap and NAKD stock
The company has issued new stock to keep the business running and this is something that investors should not overlook. It will have a long-term effect on NAKD stock. The market cap is exceptionally high, which is hard to digest keeping the fundamentals in mind. The company is worth $404 million at a stock price of 80 cents. I fail to understand how a non-profitable business enjoys a high market cap which continues to rise.
Due to the dilution of shares, it looks more expensive. Nothing has gained momentum in the company except for an increase in the number of shares. Despite raising capital through the private placement of shares, the stock does not look promising.
The Bottom Line
NAKD stock has poor fundamentals and negative future growth prospects. Even if the company infuses cash, it will be hard to generate revenue and profit. If the company does not have a hands-on approach to manage the current situation, delisting is not too far from now.
Investing in NAKD stock means putting your money in a highly risky company. There is a possibility of zero returns and losing your money completely.
These two reasons make it a stock to avoid for now. If you own the stock, wait for a rise from the current levels before you sell it. But do not set your hopes high with NAKD stock.
On the date of publication, Vandita Jadeja did not have (either directly or indirectly) any positions in the securities mentioned in this article.