Naked Brands was one of 2021’s most volatile penny stocks. The firm used to sell intimate apparel. It managed brands such as Fredericks of Hollywood, and sold these through stores and, more recently, e-commerce operations. However Naked’s business collapsed during Covid-19, leading it to reverse merge with Cenntro Electric Group (NASDAQ:CENN). In doing so, shares changed from “NAKD” to the new CENN stock ticker.
Because Naked was a popular meme stock in early 2021, it was able to raise tons of capital issuing new shares to the public. This gave Naked enough capital to avoid liquidation and, in turn, to be an attractive merger target.
Cenntro ended up deciding to merge with Naked. Existing Naked shareholders got ownership of 32% of the combined firm, with Cenntro holders keeping the other 68%. Keep this in mind if you have owned stock since the Naked Brands days; this is a new company now, and there’s no reason to hold onto shares hoping for a turnaround of the legacy apparel business.
With the merger, Cenntro got access to Naked’s remaining cash pile, along with an already active Nasdaq listing. So what’s Cenntro, and will it be any more successful than the old Naked Brands was?
Cenntro: A Small Electric Vehicle Company
Cenntro has produced more than 3,000 vehicles already. That’s something, and puts it well ahead of some other electric vehicle companies with no commercial sales yet.
However, don’t get too excited. Most of Cenntro’s sales have been of its diminutive Metro vehicle that appears primarily designed for off-road settings such as college campuses. With a top speed of 50 miles per hour and a payload of just 1,200 pounds, this is a specialty vehicle rather than an all-purpose logistics solution.
Additionally, the Metro has already been on the market for several years and failed to gain much commercial traction. The company, as a whole, is still motoring along with revenues in the low tens of millions annually, which is not a particularly impressive figure. That’s especially true once you get to Cenntro’s current valuation.
Cenntro Is Still Highly Valued
Based on certain financial website screeners, Cenntro might look like a bargain. Some financial websites still appear to be using Cenntro’s old share count back from the Naked days, and have the company’s market capitalization listed at less than $100 million.
However, our Mark Hake did some sleuthing and determined that the real post-merger share count is approximately 261 million shares outstanding. There’s some complications due to additional financing, but that number should be in the right ballpark. Based on the current $1.50 share price, that should put Cenntro’s market cap around $390 million.
That’s quite a hefty figure for a company with a small and loss-making history. And that’s even before taking into account the total fiasco that Naked was. There’s little reason to put much confidence in this organization at this time, and yet investors are still granting Cenntro a market cap close to half a billion dollars. That’s awfully high for a firm that is — optimistically — perhaps generating $25 million a year of revenues currently and running up large losses in doing so.
CENN Stock Verdict
A trader might take a quick look at the CENN stock chart and think it’s an opportunity. After all, on a split-adjusted basis, CENN stock (formerly NAKD stock) has dropped from $16,000 in 2017 to just $1.50 today. That’s a 99.99% decline. And, just over the past year, CENN shares have lost 94% of their remaining value.
Surely it has to bounce at some point, right? Not so fast. Because Naked has issued so many millions of shares over the years, it actually still had a large market capitalization heading into the merger with Cenntro. And then, in the process of executing that merger, much more additional stock was issued to Cenntro’s existing owners.
Long story short, as long as Naked and now Cenntro keep diluting the share count, the share price can keep dropping. Forget about how far the stock has already declined, there’s potentially still 100% downside from here. I’ve seen little to suggest that this firm will do much better at selling vehicles than it did at selling apparel; as such, shares remain hard to invest in.
On the date of publication, Ian Bezek 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.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a sizable New York City-based hedge fund. You can reach him on Twitter at @irbezek.
