NAKD Stock Holds Steady, But There’s a Long Road Ahead

Now that we are a few months removed from the start of meme stock mania, the time is ripe to make an objective assessment of some of the major heavy hitters. For instance, Naked Brand Group (NASDAQ:NAKD) stock benefited greatly from the momentum earlier this year and has a one-year return of 72%.

Source: NazarBazar/Shutterstock.com

But as time goes on and the impact of the meme trend evaporates, every company, including Naked Brand, will need a long-term growth story to have sustainable success.

This is where things can get a bit tricky.

NAKD has taken the adage ‘make hay while the sun shines’ to heart and has issued a massive amount of equity to fuel its transformation into a pure-play e-commerce company.

While it is an admirable and much-needed change in direction, it is easier said than done. Retail is one of the toughest consumer segments. And the company’s primary brand, Frederick’s of Hollywood, faces stiff competition. It will have to do a lot to stand out from the crowd.

And as my colleague Josh Enomoto brings up an interesting point in his article; millennials are brand agnostic. So, you will have to do a lot to win over their loyalty. The growth of companies like ContextLogic (NASDAQ:WISH) stock makes it crystal clear; millennials are perfectly happy with an affordable alternative to a big brand.

Having made these arguments, I understand the allure of the stock. CEO Justin Davis-Rice is a seasoned professional in the fashion industry who served as CEO for Bendon from 2010 to 2017. As the company steers itself out of the current crisis, his experience will be crucial. But even if the management team manages to do so, it will take a while.

We are not talking about a couple of quarters. Any solid comeback will take years.

No News Is Bad News

Admittedly, this is a company that should not have been here. NAKD’s inability to grow sales for several years meant it was all but headed for Chapter 11. However, Redditors gave it a new lease on life. And now it has the capital to fight for another day.

But now, investors are turning their attention to whether NAKD can make substantive headway in transforming into an e-commerce enterprise. Taking advantage of its rally earlier this year, the company has drummed up about $270 million of cash through equity issues. With all that capital at its disposal, Naked Brand can go ahead and pursue an aggressive e-commerce strategy. However, most depressingly, as Will Ashworth mentioned in his article, there is no substantive press release from the company in the last three months.

See also  3 Most Heavily Shorted Stocks Primed for a Squeeze

Let’s not forget NAKD is a meme stock. We usually see a flurry of press releases and updates from companies in this space to cushion the stock price. That has not happened in this case. In comparison, not a day goes by when we don’t see an update from GameStop (NYSE:GME) and AMC Entertainment (NYSE:AMC). The last time the company offered an update was when it announced the date for its latest annual shareholders’ meeting.

E-Commerce Strategy Is a Silver Lining

Despite the negatives, the pivot to an e-commerce strategy is a great move. Brick-and-mortar businesses have suffered for quite a while. And the pandemic exacerbated the shift to online purchases. In this brave new world, the writing is on the wall. Digital sales are the future. Hence, the focus is on Frederick’s, NAKD’s e-commerce platform, which currently generates about $20 million a year in U.S. sales.

The company provided a business update in March, which outlined the aim to provide 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.”

According to Statista, the global lingerie retail market was valued at approximately $42 billion in 2020 and it is forecast to reach $78.66 billion in 2027. Although estimates will vary, it’s a big market. And if the company manages even to get a slice of it, the sky is the limit. Remember, though, that this intimate apparel company lost money during a pandemic, where most people were stuck at home with very little to do.

NAKD Stock Remains Overvalued

Considering the steep drop in the stock’s price, many might be tempted to give NAKD stock a chance. However, as Mark Hake points out, there is a sizeable difference between the valuation and fundamentals. This means we have to wait for it to drop a bit more before you can even think of it becoming a viable investment.

Now, you might ask yourself; surely the e-commerce plans are worth something? Well, I am not ready to put much stock, pun intended, in those plans, considering the track record of this company. A bounce back is not out of the question, but it will be a long, arduous journey.

Now that we are a few months removed from the start of meme stock mania, the time is ripe to make an objective assessment of some of the major heavy hitters. For instance, Naked Brand Group (NASDAQ:NAKD) stock benefited greatly from the momentum earlier this year and has a one-year return of 72%.

Lingerie on a pink background.

Source: NazarBazar/Shutterstock.com

But as time goes on and the impact of the meme trend evaporates, every company, including Naked Brand, will need a long-term growth story to have sustainable success.

See also  URG Stock Alert: 5 Things to Know About Ur-Energy Amid the Unusual Stock Activity

This is where things can get a bit tricky.

NAKD has taken the adage ‘make hay while the sun shines’ to heart and has issued a massive amount of equity to fuel its transformation into a pure-play e-commerce company.

While it is an admirable and much-needed change in direction, it is easier said than done. Retail is one of the toughest consumer segments. And the company’s primary brand, Frederick’s of Hollywood, faces stiff competition. It will have to do a lot to stand out from the crowd.

And as my colleague Josh Enomoto brings up an interesting point in his article; millennials are brand agnostic. So you will have to do a lot to win over their loyalty. The growth of companies like ContextLogic (NASDAQ:WISH) stock makes it crystal clear; millennials are perfectly happy with an affordable alternative to a big brand.

Having made these arguments, I understand the allure of the stock. CEO Justin Davis-Rice is a seasoned professional in the fashion industry who served as CEO for Bendon from 2010 to 2017. As the company steers itself out of the current crisis, his experience will be crucial. But even if the management team manages to do so, it will take a while.

We are not talking about a couple of quarters. Any solid comeback will take years.

No News Is Bad News

Admittedly, this is a company that should not have been here. NAKD’s inability to grow sales for several years meant it was all but headed for Chapter 11. However, Redditors gave it a new lease on life. And now it has the capital to fight for another day.

But now, investors are turning their attention to whether NAKD can make substantive headway in transforming into an e-commerce enterprise. Taking advantage of its rally earlier this year, the company has drummed up about $270 million of cash through equity issues. With all that capital at its disposal, Naked Brand can go ahead and pursue an aggressive e-commerce strategy. However, most depressingly, as Will Ashworth mentioned in his article, there is no substantive press release from the company in the last three months.

Let’s not forget NAKD is a meme stock. We usually see a flurry of press releases and updates from companies in this space to cushion the stock price. That has not happened in this case. In comparison, not a day goes by when we don’t see an update from GameStop (NYSE:GME) and AMC Entertainment (NYSE:AMC). The last time the company offered an update was when it announced the date for its latest annual shareholders’ meeting.

E-Commerce Strategy Is a Silver Lining

Despite the negatives, the pivot to an e-commerce strategy is a great move. Brick-and-mortar businesses have suffered for quite a while. And the pandemic exacerbated the shift to online purchases. In this brave new world, the writing is on the wall. Digital sales are the future. Hence, the focus is on Frederick’s, NAKD’s e-commerce platform, which currently generates about $20 million a year in U.S. sales.

See also  Volatile PENN Stock Is a Huge Risk Above the $50 Mark

The company provided a business update in March, which outlined the aim to provide 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.”

According to Statista, the global lingerie retail market was valued at approximately $42 billion in 2020 and it is forecast to reach $78.66 billion in 2027. Although estimates will vary, it’s a big market. And if the company manages even to get a slice of it, the sky is the limit. Remember, though, that this intimate apparel company lost money during a pandemic, where most people were stuck at home with very little to do.

NAKD Stock Remains Overvalued

Considering the steep drop in the stock’s price, many might be tempted to give NAKD stock a chance. However, as Mark Hake points out, there is a sizeable difference between the valuation and fundamentals. This means we have to wait for it to drop a bit more before you can even think of it becoming a viable investment.

Now, you might ask yourself; surely the e-commerce plans are worth something? Well, I am not ready to put much stock, pun intended, in those plans, considering the track record of this company. A bounce back is not out of the question, but it will be a long, arduous journey.

On Penny Stocks and Low-Volume Stocks: With only the rarest exceptions, InvestorPlace does not publish commentary about companies that have a market cap of less than $100 million or trade less than 100,000 shares each day. That’s because these “penny stocks” are frequently the playground for scam artists and market manipulators. If we ever do publish commentary on a low-volume stock that may be affected by our commentary, we demand that InvestorPlace.com’s writers disclose this fact and warn readers of the risks.

On the publication date, Faizan Farooque 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.

Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.

View more information: https://investorplace.com/2021/08/nakd-stock-holds-steady-but-theres-a-long-road-ahead/

View more information: Finance

Leave a Reply

Back to top button