After getting caught up in the trading frenzy, Naked Brands Group (NASDAQ:NAKD) stock has joined the ranks of Reddit meme stocks.
This drove NAKD stock to $3.40 in January. NAKD stock has had quite a journey. It was trading at $1,420 in January 2017 and went down to $100 in December 2018. The stock has not seen triple digits since then.
The stock hit a high of $1.50 in January from 40 cents in one day. It came down with time but management took a chance and sold shares to investors. They managed to raise $270 during this period. NAKD stock is currently trading around 65 cents.
Naked Brands managed to pay off the debt and increased its cash reserves. With an aim to transition from brick-and-mortar stores to an online business, Naked Brands is making some strong moves in the industry.
However, I do not think NAKD stock has much juice and is not worth adding to your portfolio. Let’s take a look at why it should be out of your watchlist.
A Closer Look at NAKD Stock
The company’s core business is the sales and distribution of swimwear, apparel, and intimate clothing. Naked Brands has managed to raise cash and push it in the right direction to meet its plans of transitioning into e-commerce. However, converting a brick-and-mortar business into a purely online model is easier said than done.
Even if the company manages the transformation, it may not be able to scale and generate profitability. The company will need more capital and it will have to influx cash from time to time. Agreed, the company has no debt but it needs funds to scale the business and achieve profitability.
Naked Brands have tried to impress investors with an optimistic forecast about the future of online business but it is too good to be true.
The company needs a plan that will help generate revenue and profitability in the coming years. Seven brands have already left the company after the divestiture of the Bendon brick and mortar segment.
One must keep in mind that the fundamentals of the company have not changed. They have only come up with a new pure-play e-commerce plan, but executing the plan and capturing the market is another story.
Plus, the exit of Bendon will also have a huge effect on the financials of the company and it will be seen in the coming months. The company does not have strong fundamentals, strategic plans, or market share to grow.
The Bottom Line on NAKD Stock
I have always been a critic of NAKD and wrote about avoiding it in my previous piece. I think there is a huge management problem and the company needs a strategy to overcome the current lack of interest from investors.
The Reddit rally did take NAKD stock to new highs but it is hard to understand why the stock was even a part of the rally. It did work in favor of the company but only temporarily. Unless we see results and strong fundamentals, it is hard to look at the company in a new light.
NAKD stock is a high-risk play with no chances of growth. It is best to avoid the stock for now. Investor interest is low and the company needs to fix several aspects and mitigate risks to elevate the online business. It may have managed to raise funds but the risks are too many.
The market cap of $310 million looks stretched to me but the signs are clear, it is an awful business.
Stay away from NAKD stock.
On the date of publication, Vandita Jadeja did not have (either directly or indirectly) any positions in the securities mentioned in this article.