Naked Brand (NASDAQ:NAKD) is best known as a “meme stock.” In fact, the huge gains that NAKD stock experienced earlier this year are almost entirely attributable to the retail investors on Reddit. I say almost because, despite the meme-stock drama, the company made big moves that have also come into play.
After seeing shares spike more than 300% over several days to end January, NAKD quickly slumped. Now since mid-April, it’s been essentially treading water. Altogether, this name is a penny stock (currently worth around 53 cents), a meme stock and has been losing money for years.
However, as dire as the situation might sound, there is potential here. Yes, the company has gone through a very rough patch. Yes, it has been tarnished by its meme status and also faces a possible Nasdaq delisting. None of that is good news if you own shares. But if you’re looking to add NAKD stock to your portfolio, it’s a different story. If you’re willing to overlook the volatility, you could see long-term growth here.
NAKD Stock: Unloading Bendon for Online Prospects
In January, Naked Brand announced it was going to pursue becoming a pure e-commerce company. Given the cost of paying rent for store space — and the accelerated adoption of online shopping as a result of the pandemic — this move makes sense. Here’s how the company described the planned restructuring:
“Naked will seek to leverage its brand, platform and build out proprietary technology to meet the needs of consumers in today’s digital world.”
That sounds good, although I’m not sure about the need for proprietary technology at this stage of the online shopping experience. Regardless, it was enough to have the Reddit crowd send NAKD stock soaring.
However, there was one obstacle: Naked Brand’s ownership of Bendon. The unprofitable, capital-intensive brick-and-mortar lingerie retailer stood in the way of the company’s plans to go purely online.
Because of that, Naked announced that shareholders had approved a plan to sell Bendon back in late April. Even better, the sale would leave Naked Brand with no debt and $270 million in its war chest to fund the e-commerce transformation. This news resulted in a pop for NAKD stock.
The E-Commerce Play
Naked Brand stands to benefit immensely from its shift to e-commerce. That’s because consumers are buying their intimate wear online more and more. The market is growing. For example, one December report projected that the online lingerie market will grow at a compound annual growth rate (CAGR) of nearly 18% between 2020 and 2024. That amounts to $64.48 billion in growth during that period.
Of course, none of NAKD’s labels make the list of top vendors in that report (the company says its own online business currently generates about $20 million a year in U.S. sales). However, optimists can take that as the potential for disruption.
The company provided a business update in March that shed a little more light on its e-commerce plans:
“Naked is focused on innovative technology offerings, including a best-in-class personalized shopping experience utilizing A.I. and other technologies that will uniquely position it as a disruptive player in online intimate apparel.”
So, Naked Brand is thinking big and looking to become less of a website (or series of websites for its brands) and more of an e-commerce platform for intimate apparel. If it succeeds, there is a big market that could be in play. If it aims too high and trips up on the tech, though, it could end up blowing through that $270 million with little to show for it. With that in mind, NAKD stock definitely still has its risks.
Bottom Line on NAKD Stock
Right now, NAKD stock rates a “B” in my Portfolio Grader. Several straight years of losses are far from a positive, but the company’s big moves have real potential to pay off. The company also still has a big chunk of cash on hand. Despite the collapse of the stock since the end of January, shares are still up about 175% year-to-date (YTD). And don’t forget that Naked Brand has iconic names like Frederick’s of Hollywood in its portfolio.
Shares are cheap and the stock has momentum in 2021. If everything goes according to plan with its transformation, the stage will be set for Naked Brand’s recovery and growth. Of course, there’s a real possibility that the company is shooting too high and will ultimately sink. But in case it succeeds? If you bought NAKD at 53 cents, you’d be congratulating yourself.
Either way, there is bound to be further volatility with this name, so an investment is not for the faint of heart. So long as you have the stomach for some turbulence, though, the stock offers an enticing combo of penny-stock value and long-term potential.
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On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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