Wait Until Naked Brand Falls to 34 Cents Before Even Thinking About Buying

Recently, Naked Brand (NASDAQ:NAKD) issued a prospectus that allows us to better value the stock, although it still has not provided much information. The prospectus, dated Jul. 7, indicates there are now 906.56 million shares of NAKD stock outstanding. This can be seen on page S-8 of the document.

Lingerie on a pink background.
Source: NazarBazar/Shutterstock.com

The bottom line is that this allows us to value NAKD stock at no more than 34 cents per share. This is considering its huge cash pile as well as its online lingerie business (unless you want to value its cash at more than $1 per dollar).

Most of Naked Brand’s prior outstanding warrants are now exercised and this won’t dilute the stock much further. As a result, its market capitalization — using the Aug. 10 price of 54 cents per share — is $489.54 million (i.e., $0.54 x 906.56 million shares).

NAKD Stock: Valuing Naked Brand Group

This is important since the company has about $270 million in cash outstanding, as seen in its Mar. 29 press release (and as I covered in my previous article on NAKD stock). Of course, there is some question as to the exact amount Naked Brand has right now. But the point is, using the announced number, that the company has 29.78 cents per share in cash (i.e., $270 million / 906.568 million shares).

Now, keep in mind that this cash was as of the end of March — I highly suspect that Naked has already used some of that cash up if its online Fredrick’s of Hollywood (FOH) business is not profitable. Still, just to give the company the benefit of the doubt, let’s leave the war chest at $270 million.

As I pointed out in my previous article, the company’s online FOH business probably made about 24.4 million NZD ($17.5 million) in revenue last year. At just two times sales, that gives it a value of $35 million.

Therefore, the total value of NAKD stock is $305 million (i.e., $270 m + $35m). Dividing this by 906.568 million shares implies that the value of the company is just 33.64 cents per share, or roughly 34 cents. And that is still just 63% of NAKD stock’s current price at 54 cents. Naturally, this implies that the stock could fall farther.

So, the question is this: will NAKD stock fall to this level?

Where This Leaves Naked Brand

When I last wrote up NAKD stock, it was trading at 77 cents. At the time, I wrote that it was worth no more than 44 cents. Since then, though, Naked Brand has provided very little information. We have no idea how the company is performing as of its second quarter. We also don’t know its exact cash balance. Plus, its share balance is now higher than I previously estimated. That is why I’ve lowered my valuation.

This company has made it clear they are going to make a number of acquisitions. So, as one Seeking Alpha author clearly points out, NAKD stock is a play on the value of those potential purchases. This is because there’s little hope its FOH lingerie business will be that profitable. It simply cannot make up for the value discrepancy I’ve discussed above.

However, let’s say that Naked Brand can buy a large $200 million business and that it can make a 20% return on investment (ROI) annually. That implies that the company could make $40 million in earnings each year. That is great and would clearly make the stock worth about $500 million (or more specifically, $489 million).

But the question is this: can they find that kind of business? Can they even close such a deal? And how probable is that potential ROI?

If we had any way to answer these questions, then yes, NAKD stock is worth more than its cash per share. But until then — and until we have more information on the company’s finances — it’s better to wait until NAKD falls to 34 cents per share. At least then there’s some element of rationality to your purchase price.

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On the date of publication, Mark R. Hake did not hold (either directly or indirectly) any positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.


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