Investors Must Ask a Key Question Before Buying Naked Brand

On the surface, the broader dynamics involving the novel coronavirus pandemic should be a benefit to intimate apparel and swimwear company Naked Brand (NASDAQ:NAKD) stock.

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

Initially, the Covid-19 crisis forced everyone indoors, which put NAKD stock into the early doldrums. But thanks to the gradual recovery and acclimatization to the global health crisis, the narrative-based argument is quite robust.

As you know, retail revenge – or the concept of people ramping up their purchases to make up for lost time and experiences in 2020 – is a real phenomenon. Heck, you might have been bitten by the bug. I know I have. But for singles, retail revenge takes on a greater urgency. I’m not going to get graphic, but let’s just say that limited contact heightens certain needs.

Under that specific context, you’d think that NAKD stock has the most enviable Covid-related catalyst within the broader retail market. But if you divorce the performance of Naked shares from the meme-driven skyrocketing they enjoyed early this year, the storyline has been rather disappointing.

For instance, over the trailing six months since the end of September, NAKD stock is actually down 1.4%. So I hope you’ll forgive me when I have some skepticism regarding its 41% jump in value between Sept. 24 and Sept. 28.

What caused that spike? Per a recent Barron’s article, Naked CEO Justin Davis-Rice informed shareholders that the company found a “disruptive opportunity in the clean technology sector.” As the piece pointed out, it’s a surprising move for a swimwear retailer. However, the chief exec mentioned that he had always been attracted to ESG (environmental, social, governance) opportunities.

To be fair to those who believe in NAKD stock, we don’t quite know what “clean technology” means. But I’d be lying if I said I wasn’t rolling my eyes.

Focus on the Core of NAKD Stock

I really don’t want to ruffle any feathers, especially if you’re heavily vested in the firm. But you got to look at this narrative from an outsider’s perspective. Using terms like clean technology and ESG, it gives the impression that Naked is buying wind turbines or something. At this rate, it might as well announce a cryptocurrency-related initiative.

Swimwear, turbines, Shiba Inu (CCC:SHIB-INU) tokens? Makes sense to me…well, not really.

Of course, I doubt that Naked has gone to that extreme. Still, I got to call out the wording. If the end innovation is some mundane application, I can’t imagine the market would be too pleased with NAKD stock.

But even if the business combination made sense for the company, I believe prospective speculators will be best served by focusing on the core business. In other words, if NAKD stock wasn’t appealing to you before this wild news item broke out, I doubt that a combination would entirely change the prior outlook.

As our own Muslim Farooque pointed out near mid-September prior to the above news release, NAKD stock is unlikely to recover despite management’s best efforts. Specifically, he pointed out that:

NAKD is becoming a pure-play e-commerce company at an inopportune time. Covid-19 was a major catalyst for growth in the e-commerce sector. NAKD brands is a latecomer to the transition, which means it will take a lot of time to cement its positioning. Customer acquisition costs will be high, which means that customer retention will be challenging.

So I think it’s fair to ask, will this opaque clean technology opportunity swing the needle decisively for NAKD stock? Unless the company is attempting to shift away from commerce, it seems that retail demand is the issue, not the lack of a clean technology disrupter.

Leave a Tiny Window Open for Hope

Despite my objections – and I have serious ones about this – what the trailing year has demonstrated to all of us is that you can’t discount the crazy. It’s a time when anything goes and betting against this possibility could be a recipe for disaster.

So before you fire up an angry email, I’m going to concede that there’s a tiny crack – enough to let in a house spider and only that – in the window for NAKD stock to swing higher on this clean tech opportunity. But without any concrete details, anybody other than risk-tolerant speculators are in for a treacherous journey.

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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.


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