The bull thesis for Naked Brands (NASDAQ:NAKD) stock relies on the company pivoting after it deftly capitalized on r/WallStreetBet madness earlier.
The chances that the company achieves such a pivot are slim, at least in the short-term anyway.
Basically, Naked is attempting to redirect its traditional brick-and-mortar retail clothing business into a more modern e-commerce one.
Thankfully, it has the funding to begin that turnaround due to the youthful exuberance of the r/WallStreetBets crowd.
Those who understand what happened to NAKD stock in relation to social media-fueled stock trading in 2021 might call it lucky. Certainly the company was lucky. But frankly, it was shrewd, calculating and smart as well. What happened is actually one of my favorite narratives in 2021 from social media stocks.
A Closer Look at the NAKD Stock Run
So just to recap, Naked Brands got caught up in the WallStreetBets mania and as a result its share price increased on Jan. 26 from 40 cents to $1.50 overnight. On Jan. 27 Naked Brands announced it was offering 29.415 million shares of its stock for $1.70 each. The company netted a cool $46.9 million after fees on the shrewd move.
NAKD stock has since retreated to under 60 cents.
And that’s the story: Nothing changed at the company when social media pulled its price upward. The company was a struggling underwear retailer with its best days behind it. It simply realized the opportunity before it, understood it could capitalize on that opportunity to change its floundering business, and struck lightning fast to raise capital.
Investors who piled on probably realize this now. Thus its stock is back under a dollar. But now it has a chance – via the capital raise – to execute a pivot from brick-and-mortar into e-commerce retail.
Divestiture of Brick-and-Mortar
The company quickly went headlong into its strategic transformation. All said and done, Naked Brands came out with $270 million in cash proceeds and eliminated the debt on its balance sheet.
You have to imagine that most pundits look at the r/WallStreetBets story with amusement at best and disdain and concern more likely. Management at Naked Brands is surely smiling and thanking that group for an unforeseeable windfall.
Anyway, Naked Brands is divesting itself of its brick-and-mortar operations and moving headlong into its e-commerce pivot. The company hired a seasoned M&A veteran to help lead its e-commerce transformation as well.
On April 19 the company replaced its CFO, and a few days later announced that shareholders voted in favor of its divestiture efforts clearing its strategic path forward.
The company’s plan is to reinvigorate the Frederick’s of Hollywood online presence, make more strategic acquisitions.
“Naked has recently raised capital through the public markets that the board believes is better deployed in complimentary growth businesses in the high margin e-commerce sector,” the company said in a statement.
Potential investors into NAKD stock have a few things to consider. Such as whether buying stock in a rebuilding company make sense to them.
The company got a gift and capitalized, that much is clear. It’s a great story in corporate strategy. That much is true. However, the question now is whether it makes sense to buy into an e-commerce underwear and swimwear company at 60 cents?
Naked Brands is clearly in a stronger position than it was at the beginning of 2021. Yet, its share price is moving back toward where it was then.
Who knows how well it will be able to rebuild itself as an e-commerce business, but there’s a strong narrative for buying in now on that opportunity.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article.