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Wednesday, September 22, 2021

Is Naked Brand Group (NAKD) the Next Gamestop?

Naked Brand Group (NAKD) was on the verge of being delisted from the NASDAQ, with its shares having bottomed out at a frightening USD$0.07 a share in October of 2020. In late January, however, share prices hit an astounding USD$3.40 despite the apparent lack of justification. There were no recent developments or press releases or stellar financial reports.

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Why did NAKD See a Surge in Share Prices?

Quite the contrary, the reason for the surge was the deplorable state of the company before it.While fiscal reports for 2021 have not yet been released, its fiscal report for 2020 indicated a decline by a fifth of its revenue to $58.5 million. NAKD also saw its net loss grow from USD$32 million to USD$33.9 million. Being an underdog company on the verge of collapse, it happened to catch the eyes of users of the public forum Reddit. With a subsection devoted to the trading of stocks, users banded together to collectively drive prices up with a short squeeze. The greatest example of this to date would be Gamestop, another company with nothing to drive share prices up except the whims of the Reddit community.

What Happened Next?

Despite the seemingly arbitrary reasons for the increase in share prices, NAKD was smart enough to capitalize on this. They used the increased media attention for a significant share offering in January 2021. With the capital generated, NAKD managed to free itself of any debt and have USD$270 million left to invest into the business and hopefully sustain the surge of prices into the future.

How did this Benefit NAKD?

Being a brick-and-mortar establishment, NAKD decided to use this opportunity to shift towards becoming an e-commerce company, going so far as to sell off its physical store locations. The pandemic has seen a paradigm-shifting switch to e-commerce. Besides being necessitated by public heath and safety concerns in light of Covid-19, more and more consumers are realizing how convenient it is.

Will NAKD Continue to Rise?

Unfortunately for NAKD, the Reddit phenomenon is not sustainable, as has been seen when NAKD share prices went back down to USD$0.62. Interestingly though, there still seem to be many retail investors who are still holding on to the stocks in an effort to keep/drive prices up. This could be for a shorter-term squeeze so they can make a quick profit. It could also be because of confidence in the company after seeing how it capitalized on the fortuitous Reddit pump.

What is the Future Like for NAKD?

With such a saturated and competitive online economy, it will still be a lot of work for NAKD to settle comfortably in its transition to e-commerce. However, the company made the best of a bad hand. This itself could lend investors confidence and further stave off the hitherto looming threat of being delisted.

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