Up until a dramatic turn of events late last year, Naked Brand Group (NASDAQ:NAKD) stock was really on life support.
Well into November 2020, NAKD stock was trading hands at around 7 cents. Usually, when an equity unit trades this low, there’s a reason for it.
Now, the question is, will those reasons come back to haunt shares?
Given that NAKD stock was surely headed for implosion before getting a reprieve from social media traders, I don’t think anyone can provide a comfortable bullish thesis. And don’t look to me to provide such an argument.
If you have a conservative profile regarding your risk-reward balance, you don’t want to mess around with Naked Brand shares.
At the same time, I want to be fair. Fundamentally, NAKD stock can rise based on these broader and company-specific tailwinds:
- Women’s purchasing power has dramatically increased over the past few decades.
- The lingerie market — which is Naked’s bread and butter — will likely rise in value.
- Naked Brand suffered one of the least damaging revenue performances from the pandemic.
First and foremost, NAKD stock easily benefits from the rising prominence of women in the labor market. Back in January 1948, the labor force participation rate for women was only 32%. The metric peaked in April 2000 at 60.3% and was 57.8% just prior to the public health crisis. While there’s much work to be done, women’s purchasing power cannot be ignored.
Second, the lingerie market reached a valuation of $37 billion in 2019. By 2026, industry experts believe that it could hit $57 billion, representing a compound annual growth rate of 7.6% between 2020 and 2026.
Third, Naked only suffered a 3% drop between its fiscal year ended January 2020 and FY 2021. In fact, this is superior to many other apparel-related competitors.
Don’t Rush into NAKD Stock
With so many factors both large and small driving up the narrative for NAKD stock, you might think this is a reasonable wager to throw some speculation funds toward. While I’m not going to begrudge anyone doing whatever they want with their “dumb money,” I would steer clear of using serious money.
First, the women’s purchasing power argument applies to any retail brand. Since lingerie — like any apparel segment — is a competitive field, there has to be a compelling reason for consumers to choose Naked Brand, particularly its Frederick’s of Hollywood label. I’m not sure NAKD stock enjoys a competitive edge, though, because millennials have become brand agnostic.
But the more important argument against risking too much with Naked shares is the lingerie market itself. In a prior paradigm, I can see Frederick’s being the go-to brand for intimate apparel. But it’s likely that this market segment has shifted, enough so that Frederick’s risks becoming largely irrelevant.
I say this because consumer-level primary research indicates that in 2018, on the basis of sales channel segmentation, the multi-brand stores category held the most share at over 40%. This is supremely significant for the possible future trajectory of NAKD stock because Frederick’s is a single-brand entity.
In other words, the masses of women and consumers who identify as such do not necessarily shop just for lingerie. Instead, the data seems to suggest that lingerie purchases are often made as secondary purchases or in combination with other consumer activities.
That’s not to say that women never shop exclusively for lingerie — I’m sure many do. But recent revenue performance suggests that the lingerie-specific consumer category is a dwindling one. Instead, women are voting with their wallets, electing the conveniences of multi-brand stores.
Let the Numbers Be Your Guide
While NAKD stock and other investments popular on social media channels thrive on the narrative, at the end of the day, the highest-probability wagers have hard data to back up their underlying enthusiasm. In this case, I’m afraid the data not only not supports the bullish argument but contradicts it.
About the only way prospective buyers should ignore what I’m saying is if Naked Brand produces ridiculously encouraging sales figures. Absent of that occurrence, I would be extremely careful with NAKD stock.
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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.