Not many stocks can be down 80% off their year high and still be up 250%. But a Reddit stock can. And, today we will chit chat about one called Naked Brands (NASDAQ:NAKD). It is a retail company but for now, almost none of that matters. The only question we should ponder is about when will the Apes squeeze NAKD stock next.
NAKD stock is not for the faint of heart. Even though it is under a buck, it packs a punch.
The retail sector hasn’t had a problem-free stint in a while. Ever since Amazon (NASDAQ:AMZN) turned their world upside down, things have been bumpy. Most of them struggled to adapt to the new e-tail normal, all the while having to navigate the 2008 and 2018 corrections.
Then 2020 came around and changed things completely once again. The pandemic crippled almost all businesses. Now the government is spending trillions to fix that. All stocks including NAKD have a strong tailwind.
NAKD Stock Woes Predate the Pandemic
Things are almost coming back to normalcy and having the vaccines is helping. However, NAKD stock had problems before the market fell on pandemic fears. It crashed almost a full month before the S&P 500 did. In addition, for a long while, the stock hadn’t held its rallies. There is more to the Naked Brands story than virus-crisis disruption.
The stock has a lot of energy, which is evident by many super-spikes in the last few years. But in the end, they all fizzled and NAKD stock set a new low. Case in point, it is now miles away from its all-time highs. In the long term, this is a broken stock by looking at the chart. The debate from here for investors is if the company is also broken.
Usually I refer to the financial results for the answer. But those are murky as well because of the disruption last year. The revenues were declining already in 2019 from the prior year. The pandemic added to that and they are still running at the same rate as last year. Meaning there is no evidence of improvements, therefore, my trust in “the bottom” is very thin.
This would not be a stock worthy of my investment. I have no reason to believe that their situation will change anytime soon.
The only option is to trade the price action in this current environment. The indices broke new records again just hours ago, so we are as high as we’ve ever been. Weigh that against the fact that NAKD stock is struggling to stay off a gigantic crater bottom. This does not inspire confidence in the bullish outcome of the stock. Nevertheless, it has been setting higher-lows since the April bottom. This is somewhat of short term bullish action.
It Could Be a Winner for the Right Trader
Judging the right entry points is a tricky proposition for penny stocks. Technically, there shouldn’t be a sizable trigger until it rises above $1 per share. Conversely, dips into 60 cents and 45 cents are the next two buy-the-dip opportunities. Everything in between becomes a momentum trade in one direction or another.
This is all to say that if I’m not an active trader, I should avoid this stock.
This shouldn’t dissuade the long-term believers in it. As long as investors have a proper thesis, they can own it for as long as they deem it true. I fail to see it, but that doesn’t mean it’s not there. Add to this the Reddit factor and this is more like gambling than investing.
In February this stock skyrocketed 800% out of nowhere. This can happen again, so who am I to stop someone from profiting on such a spike? My conscience is clear for sharing my honest and unbiased opinion. For a speculative bet on a super spike, owning NAKD stock is just fine with me. Averaging down in such a position is not.
Bottom Line on NAKD Stock
Its fundamentals are in shambles with no tangible evidence of impending improvements. Revenue trends are falling and expenses are piling up.
We have had the largest tailwind from government assistance in the history. All those efforts are on their downhill slope toward an end.
The meaning? This is as good as it gets for a NAKD stock rally setup. If it doesn’t happen this summer then it is not likely going to happen anytime soon. The upside potential after the Fed tapers is going to be much tougher than the opportunity now.
On the date of publication, Nicolas Chahine 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.
Nicolas Chahine is the managing director of SellSpreads.com.