As the sentiment runs sour on intimate apparel and swimwear retailer Naked Brand Group (NASDAQ:NAKD), it’s getting increasingly difficult to find fans of NAKD stock nowadays.
Sure, there was the time in January when the stock price jumped more than 300% in a three-day Reddit-fueled buying binge. As we’ll discover, however, that magnitude of momentum simply couldn’t be sustained.
So lately, it feels like everybody and his uncle has turned bearish on NAKD stock. Some folks might even consider shorting it now. Personally, I wouldn’t recommend that.
I’ll admit, I issued a bearish call on the stock in mid-February – and indeed, the share price declined after that. With that in mind, could there possibly be a reason to own the stock now?
A Closer Look at NAKD Stock
Here’s one interesting thing about NAKD stock. If you go back to March of last year, during the initial panic phase of the Covid-19 crisis, the share price was pretty close to 50 cents.
You’d think that this would be rock bottom for the stock, but no. In November, the share price hit a gut-wrenching 52-week low between 6 and 7 cents.
Fast-forward to January 2021, and the picture was starting to look a little bit brighter for the bulls. They managed to bring the NAKD stock price up to around 40 cents – and then apparently, the Reddit crowd intervened.
It’s been said that the users of subreddit group r/WallStreetBets helped to push the stock up to a 52-week high of $3.40 in late January. However, I can’t prove that those Reddit users caused the stock to go up that far.
Unfortunately, on the afternoon of March 15, NAKD stock was back down to the $1 area. But hey, at least prospective investors can get in at a discount compared to the peak price.
Too Much Share Selling?
Not long ago, Naked Brand Group agreed to a private placement of shares and warrants. Reportedly, this would bring in gross proceeds of approximately $100 million.
Not everyone will view this as a positive development. In a private placement, a company typically sells its shares and/or warrants to big-money (accredited and/or institutional) investors.
The point is that current stockholders might not like the fact that the company is selling a bunch of shares. It really wasn’t very long ago (late January, actually) when Naked Brand Group issued and sold 29,415,000 of its ordinary stock shares to institutional investors.
Due to the nature of supply versus demand, current NAKD stockholders would probably prefer that the company not sell so many shares. The primary concern would be that the value of the shares might be diluted.
This is a valid concern, so I wouldn’t advise taking a large position in the stock. On the other hand, we should also consider the possible benefits that might have come from the recent private placement.
A Better Balance Sheet
The whole point of private placements is usually to raise capital. In Naked Brand Group’s case, the most recent cash-raising effort could serve to firm up the company’s financials.
“This additional capital will further transform our balance sheet and now with $200 million in cash and no debt,” Naked Brand Group CEO Justin Davis-Rice explained. “This uniquely positions Naked to pursue strategic acquisitions that provide accretive value to shareholders.”
If there are two words that are music to my ears, they are “no debt.” Frankly, a lot of the skeptics of this company probably wouldn’t expect to hear that phrase associated with Naked Brand Group.
Potentially having $200 million worth of cash is also a positive development for the company.
Still, informed investors should want to know what Naked Brand Group intends to do with all of that capital. Thankfully, the company provided a response to that query in its press release:
“… the proceeds will be used to develop the Company’s technology solutions, increase its existing digital footprint, and pursue accretive acquisitions of existing e-commerce brands and for general corporate purposes.”
There’s that word “accretive” again. As far as I can tell, it’s just a fancy way of saying that the proceeds will add value to the company and, less directly, the stock price.
The Bottom Line
Okay, so we don’t know exactly what Naked Brand Group will do with the $200 million. I certainly hope that the company spends it wisely.
What we can affirm is that the company is evidently debt-free and in a decent capital position. It’s not perfection, but it’s progress.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
