With its transition to an e-commerce business nearly complete, is now the time to buy Naked Brand Group (NASDAQ:NAKD) stock?
NAKD stock is trading well below its 52-week high of $3.40 per share opening today at around 91 cents.
However, the company has received some positive attention, and a slight bump in its share price.
This came after it succeeded in offloading its Bendon subsidiary, a money-losing brick-and-mortar retail operation.
The divestiture frees up Naked Brand to sell its swimwear and lingerie apparel exclusively online, a move that could improve the company’s financial health.
Investors may now want to give the stock another look.
Frederick’s of Hollywood and NAKD Stock
The deal to divest the Bendon subsidiary comes with favorable terms for Naked Brand. Specifically, Naked gets a share of any net profits Bendon earns over the next three years, which could be extremely helpful to the company’s bottom line.
Now that the Bendon deal is complete, Naked Brand plans to turn its attention to growing its “Frederick’s of Hollywood” lingerie brand online. Management has also indicated that it is looking for potential merger and acquisition targets that would complement its business and brand portfolio.
Considering that the Bendon subsidiary was primarily responsible for Sydney, Australia-based Naked Brand’s financial losses, to the tune of about $57 million between 2018 and 2021, being able to jettison the retail chain should come as a great relief to management and shareholders.
Many analysts now see Naked Brand as an interesting turnaround story, one that has plenty of upside for NAKD stock.
Paying Off Debt
NAKD stock has been targeted by retail traders who frequent the r/WallStreetBets Reddit forums. Much of its jump to $3.40 a share was due to it being squeezed in a retail trading frenzy along with other so-called “meme stocks” earlier this year.
However, rather than merely being flummoxed by the Reddit pump and dump, management used the temporary surge in NAKD stock to its advantage, selling additional shares and using the proceeds to pay off all the company’s debt.
As a result of the stock sale, Naked Brand is today not only debt free, but it also has built a cash reserve that’s now worth more than $250 million.
This strong financial position should enable Naked Brand to secure favorable loan terms moving forward that will be able to help it grow and expand, either through acquisitions or strengthening its current operations, or both.
In the end, the Reddit trading frenzy that affected NAKD stock earlier this year proved to a good thing for the company and its future outlook.
NASDAQ Compliance
While its financial standing has been improved, Naked Brand continues to face issues that afflict penny stocks, namely it is under constant threat of being delisted by the Nasdaq stock exchange for failing to keep its share price above $1.
Currently, Naked Brand has until Oct. 25 to regain compliance by keeping its share price above $1 for 10 consecutive days or NAKD stock could be delisted from the Nasdaq. This isn’t a new issue for Naked Brand, but it would be nice if the company could remove this type of distraction once and for all.
There is speculation that Naked Brand will execute a reverse stock split in order to get its share price above $1. In a reverse stock split, companies consolidate the number of existing shares of stock into fewer, more valuable shares.
To lower the total number of outstanding shares on the open market, companies such as Naked Brand divide the total number of shares outstanding by a number such as five or ten, which is then called a 1-for-five or a 1-for-10 reverse split.
While feasible, reverse stock splits are generally frowned upon on Wall Street and tend to indicate that a company is in financial peril.
Keep NAKD Brand on Your Watch List
Naked Brand is an interesting company with a compelling story. Its financial picture has improved markedly from the beginning of this year and the company appears to be in full turnaround mode.
However, NAKD stock is still not worth very much and, as a penny stock, carries considerable risk at the present time. Investors should keep Naked Brand on their watchlist for now and pay attention to the company’s efforts to make a go of it as an online only retailer of swim wear and lingerie.
If the company’s stock breaks back above $1, be prepared to grab shares.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
