Naked Brands (NASDAQ:NAKD) is proving that traders want what they want. NAKD stock is up over 160% for the year. However the better way to say it may be that the stock is holding on to a 160% percent gain. That’s because at one point, investors were enjoying a gain of 650%.
Some of that gain was due to the mania that took over many low-priced stocks. Traders heard about the company’s pivot to being an e-commerce only brand and saw their opportunity.
But from that point in late January to Mar. 4, 2021, NAKD stock dropped 46%. In the two months since, it’s down another 31%. I applaud the traders who bought the stock at the beginning of the year and held on. Through all the ups and downs they’re sitting on a nifty gain.
That being said, this looks like a falling knife. So I would suggest being ready to take profits, but that shouldn’t surprise anyone. I’ve been asked to write about Naked Brands several times since the pandemic began. In each case, I’ve come to a similar conclusion. The company is struggling to add revenue in a growing, competitive sector.
Where Will the Revenue Come From?
Based on the most recent financial results I could find, Naked Brand’s trailing 12-month revenue came in at $82.54 million. And the company had a trailing 12-month gross profit of $33.99 million. That said the company posted negative EBITDA of $25.61 million along with a $44.03 million net loss.
If I was looking at those numbers from a startup company, I might be encouraged. But Naked Brands has been around for a long time. And those numbers will have to get a lot better to avoid the company burning through that $270 million cash reserve in no time flat.
In fairness, Naked Brands is taking the right steps to make a comeback. And as Mark Hake pointed out in January, the company is right-sized to take advantage of any sort of a lift. But that’s akin to buying a treadmill and some workout clothes. Taking the right steps has to lead to results. And so far those results are not being reflected in NAKD stock.
Naked Brands reports earnings semi-annually so investors should be hearing from them soon. When they do, the focus should be on meaningful growth from their business model. Accounting maneuvers only go so far.
NAKD Stock Has Miles to Go
Naked Brands is a great example of the gamification of stock trading. And I’m not talking about whether or not it’s a “meme stock.” I’m talking about the fact that there’s no doubt traders of all stripes are getting positive reinforcement for their trade on apps like Robinhood or Webull.
I’m all for positive reinforcement. When I hit my steps goal, my pedometer shoots off confetti and streamers and all that jazz. But the real measurement of my fitness goals stares at me in the mirror every day. I still have to do other things to generate sustainable results.
And that’s really my point. NAKD stock may hit some short-term trading goals. It may even go over $1 per share for 30 consecutive days to avoid delisting. But without evidence that it is able to do the other things that are fundamental to a strong business, that growth is not sustainable.
And as Josh Enomoto points out, while being an e-commerce company seems like a very on-point thing to do in 2021, it’s not a guarantee of success.
Naked Brands may still be a good trade. It may even be a great trade. And if that fits your investing style, go for it. But understand that this is still a company that needs to generate a lot of revenue in a very competitive market.
On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for Investor Place since 2019.