Naked Brands (NAKD) stock has been very volatile in 2021. The stock is down 80% from its 52-week highs. Is it a good time to buy NAKD stock in June?

NAKD stock has a 52-week trading range of $0.066-$3.40. While the stock trades at a steep discount to the 52-week highs, it is still up massively from the 52-week lows. So far, the stock is up almost 200% in 2021. Like all other meme stocks, while it is down sharply from the peaks, it is up sharply for the year.

NAKD stock technical analysis

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Naked Brands stock has found strong support at the 200-day SMA (simple moving average) which is currently at $0.52. The stock has also crossed above the 50-day SMA which is currently at $0.63. However, it trades below the 10-day, 30-day, and 100-day SMA. The 100-day SMA has been a strong resistance for NAKD stock and it needs to break above the trendline for an uptrend to resume. The 14-day RSI (relative strength index) of 47.6 indicates neither overbought nor oversold positions.

Naked Brands stock was targeted by Reddit group WallStreetBets earlier this year. The group comprises retail traders who have been acting as a group. They have picked up stocks with a positive fundamental story. The group has also targeted turnaround candidates like GameStop and NAKD. Also, Reddit traders have especially targeted stocks that have a high short interest.

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NAKD stock short interest

By targeting stocks with high short interest, Reddit traders have been able to trigger a short squeeze. In a short squeeze, a steep rise in an asset’s price leads to massive losses for short-sellers. As a result, short sellers have to cover up their positions by buying the stock. This leads to a domino effect and leads to more buying support for the stock.

While short squeezes generally have a short-term price impact, Reddit traders have helped several companies through the squeeze. Most of the companies which were targeted by WallStreetBets traders went for a fire sale of their stocks to capitalize on the rally. The list includes names like AMC Entertainment, GameStop, Sundial Growers, Zomedica, and NAKD.

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Naked Brands has huge cash on the balance sheet

In its most recent update, NAKD said that has $270 million worth of cash and cash equivalents on its balance sheet. To put that in perspective, the company’s market capitalization is only about $554 million. This implies an enterprise value of $284 million.

NAKD is a penny stock so none of the analysts is covering the stock. The company was created in 2018 when Naked Brand Group merged with New Zealand-based Bendon Limited.

Recent developments

However, the company has exited the Bendon operations earlier this year to focus on the e-commerce operations and the Frederick’s of Hollywood brand. “Today, the company has an iconic brand and a strong balance sheet, ideally positioning it to be at the forefront of consolidation within the industry,” said Naked Brands.

The company is looking at acquisitions to deploy the massive cash on its balance sheet. “The company is focused on seeking opportunities to acquire eCommerce-based operating businesses in intimates and swimwear that can leverage operating and revenue synergies through a larger consolidated group,” it said in a release.

NAKD stock faces competition

While NAKD is working to position itself as a pure-play e-commerce company, it faces challenges in several levels. Firstly, there are larger and diversified e-commerce players like Amazon which have a network effect and an impeccable ecosystem. Also, it would compete with brands like Victoria’s Secret.

NAKD looks like a good penny stock to buy

However, NAKD has been making several decisions to turn around the business and has also overhauled its top management. Penny stocks in general are risky to invest in than larger companies. There can be price manipulation as given their small size, it is easier to influence the price action of penny stocks.

That said, NAKD looks like a good penny stock. While it is risky and speculative like almost all other penny stocks, the company’s turnaround effort and the massive cash on its balance sheet make it a name worth betting on.

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About Mohit PRO INVESTOR

Mohit Oberoi is a freelance finance writer based in India. He has completed his MBA with finance as majors and also holds a CFA charter. He has over 14 years of experience in financial markets. He has been writing extensively on global markets for the last seven years and has written over 7,500 articles. He covers metals, electric vehicles, asset managers, tech stocks, and other macroeconomic news. He also loves writing on personal finance and topics related to valuation.

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