Naked Brand’s (NASDAQ:NAKD) stock soared higher on Tuesday after the electric vehicle company that it is merging with announced that it has recently completed testing on its cars in Europe. The gain of 15% in NAKD stock was impressive, although shares are cooling off this morning. So what do you need to know?
Earlier this month, Naked Brand announced it would undergo a reverse merger with electric vehicle startup Cenntro Automotive. Yesterday, the EV company in question said it has completed market-validated testing on its commercial vehicle, the Logistar 200 in the European Union. It also shared that it is poised for approval on the continent.
What Happened With NAKD Stock
Naked Brands shocked markets and its shares rose more than 20% last week after the swimwear and lingerie company announced that it is merging with Cenntro Automotive, an early stage electric vehicle company. News of the merger arrived as NAKD stock struggled to trade above $1 per share and is in danger of being delisted by the Nasdaq stock exchange.
Now the shares are moving higher again following Cenntro Automotive’s news that it has taken a step closer to commercialization in Europe. Investors should note that Cenntro Automotive has sold nearly 4,000 commercial electric vehicles already. And when Cenntro merges with Naked, the combined company will have a market capitalization of roughly $2 billion.
Why It Matters
News that Cenntro Automotive has completed some milestone testing in Europe is a sign that the company is legitimate and the merger could be a positive development for Naked Brand. Because they represent such different industries, many analysts and investors have not been sure what to make of the Naked-Cenntro deal.
Exactly how a swimwear and lingerie company and an electric vehicle manufacturer will mesh and achieve synergies is not immediately clear, and some on Wall Street saw the announced deal as a Hail Mary pass on the part of Naked Brand as it is on the verge of delisting.
But Cenntro Automotive does seem like the real deal. The company’s first vehicle in production is called the Metro, and it is a light electric commercial car designed for urban transportation purposes such as food and package deliveries. As I wrote last week, “Trial production of Metro started in 2017 and the vehicle is now sold in North America, Europe and Asia. Cenntro Automotive says it plans to introduce four additional electric vehicle models to serve the light-and medium-duty market by the end of this year.”
NAKD stock gave up much of the gains it achieved last week, although shares remain up more than 200% year to date.
What’s Next for Naked Brand
Cenntro Automotive and Naked Brand need to complete their merger, which is expected to close by year’s end, and prove that the new company can succeed. For Naked Brand, which is best known for its Frederick’s of Hollywood lingerie line, the move into electric vehicles could prove daunting.
More immediately, the company has to get NAKD stock above $1 to avoid delisting. Yesterday’s news is helping with that effort and represents a positive development. But Naked Brand’s long-term outlook remains uncertain. Right now, Naked Brand’s revenue comes from selling bathing suits and undergarments, not electric vehicles.
On the date of publication, Joel Baglole 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.