I’m going to be straight up with you all: I don’t remember a time when I’ve ever given the bullish case for Naked Brand (NASDAQ:NAKD) stock.
So if you happen to be a first-time reader who is obsessed with the long-side argument for NAKD stock, my articles are only going to upset you.
However, it’s also true that shares of the intimacy and swimwear apparel maker have been on a wild ride.
On a year-to-date basis, NAKD stock is up over 204% but that only tells part of the tale. On a five-year trailing basis, NAKD has lost a staggering 99.91% of market value. Mathematically, then, it’s barely hanging on.
Still, in this age of memes, that spells opportunity, and at one point in late January of this year, it seemed as if the impossible were about to happen.
Those who bought NAKD stock just before the coronavirus derailed the U.S. and global economies were about to break even on their position, if not profit from it.
In hindsight, that was a very limited window for stakeholders to dump out. But with signs of bullishness starting to creep in, I thought I might examine both the bull and bear case for NAKD stock and let you be the judge.
Will Lightning Strike Twice for NAKD Stock?
Although I’m personally biased toward the skeptical end of the spectrum, some fundamental and technical factors piqued my curiosity. They are as below.
- Pent-up demand: Several of my InvestorPlace colleagues, including the one and only Matt McCall, cited pent-up demand as a powerful catalyst in the post-novel-coronavirus ecosystem. Another term for this is retail revenge. Essentially, the pandemic denied people who wanted to make purchases or go on vacation. With saved-up funds, they will likely spend to compensate for lost retail experiences. Perhaps people will also do other “things” to make up for lost time. Theoretically, this bodes well for NAKD stock and its underlying business.
- Surprisingly strong sales: For Naked Brand’s fiscal year 2021 (ended Jan. 31), it posted revenue of $57.62 million, which was down 3% from the $59.45 million generated in the prior year. Still, that’s not a bad outing considering the context of the pandemic. As it turns out, consumer behaviors adapted to the crisis, with women — and I guess some men — buying comfortably fitting bras. Thus, intimate wear demand itself never changed, only the product type. This again augurs well for NAKD stock.
- Technical support: Looking at the technical chart from an objective perspective, you can’t help but feel somewhat optimistic for NAKD stock. Based on the closing price of April 16, NAKD has printed a series of higher highs and higher lows. Also, it enjoyed a robust session on June 23, putting it above the 50-day moving average. Even if you don’t agree with the fundamental arguments, the technical catalyst is apparently alive and well.
Why You Should Be Careful Going Naked
As tempting as NAKD stock is as a speculation trade, the reality is that you never know when these phenomena break down. Because make no mistake, the risk of a breakdown is much higher than the potential of a breakout.
- Speculation raging wildly: What makes NAKD stock tough to stomach is that everyone is seemingly speculating on something. If it’s not Naked Brand, it’s another meme trade or cryptocurrency. As data from the Financial Industry Regulatory Authority shows, stock trading on margin continues to hit record levels month after month. At some point, the fever will die and that could have hugely negative consequences for NAKD. Plus, the downside can be unpredictable, steep and in some cases, permanent.
- Unrealistic short squeeze play: As you likely know, social media activity is bonkers for NAKD stock. It’s not the most popular trade but it’s up there. Anyways, the recurring theme for these trades is the short squeeze. But I’m just not seeing it for NAKD. As of May 28, 2021, the short percentage of float is only 5.4% and the short ratio is 0.46, which means that the bears are not going to panic out of their positions if the price goes up a bit.
- Millennials are brand agnostic: One of my go-to arguments against NAKD stock, I think it’s still relevant. Millennials just don’t care about branded fashion as prior generations did. Indeed, they don’t care about a whole bunch of other things, causing massive changes in the retail sector. But then, when you add in the fact that with NAKD, you’re talking about intimate wear, the business model makes even less sense.
Intriguing but Not Quite Enough
While I’m not yet convinced to take a long position with my own money, I’ll concede to the supporters something: NAKD stock is more than blind speculation. How much more, though, is the real question.
Fundamentally, I think the strongest case for Naked Brand is that industry demand for intimate apparel stayed largely the same, outside of the lost sales between February through April when it appeared that the world might collapse.
Factor that out and demand may have actually improved despite lingering fears of the coronavirus.
Still, this is an incredibly risky trade you’re talking about. I’m (probably) not going to join you but I wish you luck if you decide to spin the wheel.
On the date of publication, Josh Enomoto 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.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.