Much like other meme stocks, Naked Brand Group (NASDAQ:NAKD) surged in late May and early June. But the rally did not last long. It was the latest in a series of super spikes for NAKD stock that retail investors love and value investors loath.
Year to date, NAKD stock is up 157%. At the same time, the three-year return is negative 99.9% (the stock had a 1 to 100 reverse split in December 2019). You shouldn’t worry, though. This is common in the world of Reddit stocks. If investors on r/WallStreetBets band together for a “diamond hands” mentality, they can drive your stock “to the moon.”
Trading a short squeeze can be risky but also very rewarding. That’s why there are investors out there that want to retain NAKD stock in the hopes that another spike is around the corner, courtesy of novice traders united on social media who will relentlessly purchase stock and options in ailing companies like Naked Brand.
In the meantime, Naked is doing all it can to produce a coherent e-commerce strategy for a time when the Reddit support will fade to the background.
The economy is back on track. U.S. hiring accelerated in June, with nonfarm payrolls increasing by 850,000 last month, bolstered by strong job gains in leisure and hospitality. With that, the stimulus money is also likely to dry up in the forthcoming quarters, leaving less money for Redditors to play with.
The writing is on the wall. NAKD does not have the fundamental strength to sustain its spikes. NAKD stock is staring down the barrel. It must get its stock price above $1 for 10 straight days by Oct. 25.
Nowhere to Go But Down for NAKD Stock
Things are getting back to normal. Stocks are heating up as people go back to work. With that in mind, there is hope that retail companies like Naked will also see positive sales from this recovery. But it’s easier said than done.
CEO Justin Davis-Rice put together Naked Brand Group. Before he was with Naked, he ran Bendon Group, a chain of lingerie stores based in New Zealand. Bendon was started in 1947, and Naked purchased it in 2018. But things did not go as planned, and Naked divested Bendon in April.
With the brick-and-mortar side of the business gone, Naked is now firmly focused on its e-commerce brand, Frederick’s, which is being used under a license from Authentic Brands Group. Branding is one of the most important activities fashion businesses can engage in. Davis-Rice tweeted recently the company now has $270 million in cash.
With that cash in hand, more acquisitions could be around the corner. The company describes itself as being focused on acquiring existing e-commerce brands in intimates and swimwear. By acquiring more companies in its market, it can more efficiently operate each one.
Management has to do something with this cash and fast. If Naked Brand ends up just firefighting with this capital, investors will bail en masse.
NAKD Stock for the Retail Trader
As I mentioned in my intro, Redditors have a thing for ailing enterprises. They have so far managed to resurrect GameStop (NYSE:GME), AMC Entertainment (NYSE:AMC) and several other notable names. With stimulus money drying up, these investors will likely have less money to pour into risky speculative plays. However, that does not mean there will not be spikes along the way.
Reddit stocks are notoriously news-sensitive. Any information regarding a possible merger or further news regarding its e-commerce strategy will send the stock skyrocketing once again. Again, this is not a reflection on the fundamentals, which were lackluster even before the pandemic struck in full force.
With few catalysts in sight and the stock price losing steam, there are few reasons to remain invested in this one. If you have not cashed in your chips, then now is the time to do so.
Naked Is Fighting an Uphill Battle
NAKD stock is in danger of delisting, has divested its most lucrative business segment and is still in the early stages of firing a coherent e-commerce strategy to take on the likes of Amazon (NASDAQ:AMZN).
Redditors deserve credit for resurrecting this company. Management deserves credit for selling stock and taking advantage of the situation. However, there is little here that will pique your interest beyond the off chance of Reddit induced frenzy.
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On the date of publication, Faizan Farooque 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.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio. Faizan does not directly own the securities mentioned above.