Kiwi lingerie group Naked Brand Group (NASDAQ:NAKD) is among the stocks being pumped by Reddit users group WallStreetbets. Could this company, which a few weeks ago was fighting to survive, use its new profile to turn itself around and show us the tendies (profits in non-Reddit speak)?
The company’s stock hit a year low of $0.066 prior to the Reddit interest. It reported last May a net loss of $33.9 million for the year 2019-2020 and a sales drop of 20 % as it retreated from some key markets. Not much to entice investors there.
But thanks to the push on Reddit, its shares skyrocketed and were among the stocks temporarily suspended on the Robinhood trading platform, along with the now infamous Gamestop (NYSE:GME). It’s trading at a 66 % discount to its January high but still going strong.
Reddit users are begging their peers on the platform to hold on to the stock (what they call diamond hands), saying it could fly over $10 but adding that it will only work if everyone holds.
The Naked Brand restructuring plan
Reddit investors are hoping this will be another Gamestop and that we will see a short squeeze push this share price “to the moon” but what’s more interesting is what Naked Brand has done with this opportunity.
Moving with lightning speed as its share price surged, the company made a direct offering — netting itself an estimated $49.6 million — and simultaneously announced a drastic restructuring plan.
It ditched its chief executive, appointing the CEO of its subsidiary Bendon, and said it would divest its bricks and mortar business and focus exclusively on e-commerce. It also plans to hunt acquisitions in e-commerce technologies to put it at the cutting edge of online lingerie sales.
These aspects should be more relevant for the inspiration behind the Gamestop surge: Youtube investment guru Roaring Kitty aka Keith Gill, a Massachusetts trader with a penchant for kitsch cats. This retail investors’ hero says he is all about value investing. With a bit of chart gazing thrown in.
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Ignoring what happened with Gamestop (we doubt this is likely to happen again to the same magnitude as institutional investors and regulators are keeping their eyes peeled), we think we have to look at the fundamentals or we watch the charts, buying the dip and praying we exit at the right moment.
Let’s leave the latter option for the brave (or more reckless – “I don’t even know what this company does,” says one Reddit user pushing Naked). For the fundamentals, we see some pros and cons.
Naked was able to capitalise quickly on price surge
It’s impressive how swiftly the company capitalised on the share price surge. The focus on e-commerce is welcome if not a little late coming. But those losses are hard to ignore and the company has some serious work to do to put itself at the forefront of online lingerie sales.
What’s more, while the new chief has a track record in the industry and merged Bendon with Pleasure State, a company which he had co-founded, turning it into a multi-million dollar business, e-commerce is a different ball game.
Naked Brand shares could post some further Reddit inspired gains. Or they could not, and could leave investors licking their wounds. The company might also make an amazing comeback with its fresh cash or it might not.
Roaring Kitty says one of his investment criteria is confidence – like a gut feeling – an immeasurable investment criteria. We think this is a roller coaster of a ride and one we might skip.