Editor’s Note: This article was updated on May 17, 2021, to correct the date by which Naked Brands must meet minimum bid requirements.
The naked truth about Naked Brands (NASDAQ:NAKD) stock is that there’s nothing here worth buying.
Naked Brands is a small seller of lingerie and swimsuits, a combination of failures and licenses like Frederick of Hollywood. It was formed by a 2018 merger with a New Zealand company. It seemed to report a good 2019 but was never cash-flow positive.
Despite this, the small investors at the Reddit r/WallStreetBets discussion thread fell in love. They squeezed shorts to take shares from 22 cents all the way up to $3.40, then began walking away. Some ran.
NAKD shares are now at 57 cents and the company has a market cap of $370 million. That’s million with an “m.”
What Was Built
“What a fool believes he sees no wise man has the power to reason away,” the Doobie Brothers sang in the 1970s. In the 1980s, Stanley Weiser gave his character Gordon Gecko that classic line in Wall Street, “A fool and his money were lucky to get together in the first place.”
I have written about the penny stock game before, regarding Castor Maritime (NASDAQ:CTRM), which used the gullibility of small investors to buy cargo ships. Stocks with tiny market caps are easy to manipulate. All it takes is a story.
Our Matt McCall surmises that Naked Brands became attractive simply because of its ticker symbol, NAKD. It’s the kind of thing middle-school boys will snigger about in hallways, and many WallStreetBets players are no smarter.
But much like AMC Entertainment (NYSE:AMC), which used its short squeeze to recapitalize with stock, Naked Brands management seized its 15 minutes of fame. They sold stock to put over $200 million on the balance sheet. They are dumping Bendon, the store chain that had been behind the company in the first place. Now they claim to be an e-commerce play with cash on the balance sheet, hungry for acquisitions. That’s why the shares aren’t back down to 22 cents.
What Happens Next
Naked is run by a man named Justin Davis-Rice, whose salary is listed at $576,003. He had been running Bendon, the unit that is being sold out. A man named Simon Tripp, not related to the Pittsburgh gentleman running TEConomy Partners, was named to the board in March. He was recently joined by Mark Ziirsen, an Australian executive, who was named chief financial officer. Ziirsen has experience with several Australia Securities Exchange companies.
Our Muslim Farooque looked at NAKD stock last month and found that it risks de-listing unless it can get over $1 by Oct. 25. To hit that mark, it must either wow investors with its plans or do a reverse stock split. This article won’t help with the wowing.
This doesn’t mean all is lost. Our William White wrote last month NAKD stock is still worth a look. Our Vince Martin has written that NAKD management now has another chance.
The Bottom Line
If you’re still reading this, it’s likely you got into NAKD stock late and you’re sitting on a long position.
My advice is to take the lesson and sell now. If you’re lucky to get into something that doubles, sell it. Get into something that makes sense. Don’t do all your research on r/WallStreetBets.
If you’re young and learn the lesson, you’ll be fine. I have made a lot of mistakes during my investment career. Do you know I once lost money on Apple (NASDAQ:AAPL), holding it through its darkest days, selling right after Steve Jobs re-joined?
Forgive yourself. Then go and sin no more.
On the date of publication, Dana Blankenhorn held a LONG position in AAPL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com, tweet him at @danablankenhorn, or subscribe to his Substack https://danafblankenhorn.substack.com/.
