Naked Brand Group (NASDAQ:NAKD) has recently been in the limelight, mostly thanks to traders getting information from online platforms like Reddit. NAKD stock, which started 2021 around 20 cents, saw a 52-week high of $3.40 on Jan 28.
As I write, the shares are hovering at 92 cents. Put another way, the proverbial $1,000 invested in the company in early January would now be over $4,500.
The dollar-per-share level of NAKD stock is psychologically important for many investors. Also, the Nasdaq stock exchange requires shares to stay above this threshold. In February 2021, the company managed to comply with this listing requirement, and now, NAKD stock is once again below $1.
Over the past year, investors have shown a growing interest in lottery-like stocks such as Naked Brand. Amid such volatility and hype, getting all sides to a story becomes even more important.
Today’s article will take a closer look at whether NAKD stock deserves to be in a long-term retail portfolio. Unless you can afford to take a major loss on a potential NAKD stock investment, you should invest your hard-earned cash in another robust stock. Here’s why.
Poor Financials Amidst Restructuring Efforts
Naked Brand Group specializes in intimate apparel and swimwear. The company, is the result of a 2018 merfer between 72-year-old New Zealand company Bendon Limited and Naked Brand Group Inc.
It currently sells merchandise at company-owned retail stores in Australia and New Zealand as well as online in Australia, New Zealand and the U.S. In addition, the company has wholesale partners in Australia and New Zealand and, on a more limited basis, distributors in the U.K. and the European Union. Bendon is its flagship brand.
The group releases financial metrics semiannually, as shown on the relevant SEC website. The latest results for the six months ended July 31, 2020 were published in November 2020.
Net sales declined by $7.5 million, or 17.9%, to $34.6 million. A year ago, they had been $42.1 million in the six-month period ended July 31, 2019.
In fact, the company has constantly been reporting revenue declines over the past several years, a trend that should concern potential investors. For the current period, the net comprehensive loss was $19.7 million. Last year, it had been $27.2 million. Yet, the decrease in net loss was due to extreme cost-saving measures.
Meanwhile, the pandemic has forced the company to raise capital through share offerings. As a result, it has paid down some of its debt and purchased inventory to continue operations.
In January, Naked Brand announced it would sell its brick-and-mortar businesses as part of on-going restructuring efforts. The promise of increased e-commerce operations was, in part, behind the interest of the Reddit community in NAKD stock.
However, the financial report clearly points out, that given the ongoing losses the company worries about its “ability to continue as a going concern.”
This is a reminder that despite the spectacular run-up in the share price over the past several months, we have to remember that the company’s business is not in good shape.
The Bottom Line on NAKD Stock
In pre-coronavirus days, given the state of poor fundamentals of the company, a stock like NAKD would not be seeing a return of close to 400% in a matter of weeks.
However, Covid-19 has brought a peculiar trend where unprofitable businesses with poor balance sheets are seeing getting investor interest. The result is volatile swings in the share price as well as high volumes traded.
Therefore, potential investors should think twice before buying NAKD stock. Instead of speculating, they could easily invest in other shares that have stable businesses with high-growth potential.
However, if you are a speculator and day-trader, you might understandably want to ride the wave in NAKD shares as long as you are within your well-defined risk parameters.
Long-term investors might instead consider exchange-traded funds (ETFs) that invest in small-caps, retail, or global online shopping. Examples include the iShares Morningstar Small-Cap Growth ETF (NYSEARCA:JKK), the SPDR S&P Retail ETF (NYSEARCA:XRT), or the Global X E-commerce ETF (NASDAQ:EBIZ).
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.
