NAKD Looks Like a Good Stock to Buy Amid the Short Squeeze

Naked Brands (NAKD) stock rose over 13 percent on Aug. 24 amid the rise in meme stocks. Fellow meme names like AMC Entertainment (AMC) and GameStop (GME) rose over 20 percent and 27 percent, respectively. What’s the forecast for NAKD stock and is it a good buy amid the short squeeze?

Reddit stocks have been silent for the last month. There hasn’t been much movement in general in meme stocks barring company-specific factors. For example, ContextLogic (WISH) tumbled after its second-quarter earnings disappointed markets on almost all of the metrics. WISH stock also rose 6.4 percent on Aug. 24 amid the rally in meme names.

While none of the Wall Street analysts have provided a forecast for Naked Brands' stock, the company’s outlook looks positive. The company has taken some decisive steps towards transformation and exited the perennially loss-making brick and mortar business. It also took the tactical decision to issue shares when the stock soared.

While the stock sale has led to a massive dilution, it has also positioned NAKD for growth. Now, the company has plenty of cash to invest in its e-commerce business. It's also looking at acquisitions to deploy some of the cash.

The most recent news from NAKD brands came last week when the company announced that it has identified an acquisition target. “We have recently reached preliminary agreement on non-binding terms and are now conducting due diligence. The company is in a sector which has been forecast to have strong growth for many decades to come,” the company stated in the SEC filing.

Naked Brands hasn’t specified the name of the company and there isn't a guarantee that the deal will go through at the terms that are under consideration or go through at all. But then, these are boilerplate discussions that companies give when a deal is under consideration.

According to Ortex estimates, the short interest for NAKD stock as a percentage of free float is 6.05 percent, which is 8.8 percent higher than it was seven days ago. The days-to-cover ratio is estimated at 1.2, which looks high enough to trigger a squeeze.

NAKD is among the popular meme stocks. There's a subreddit with almost 25,000 members to discuss the stock. Traders on the group are euphoric about the stock after the rise and most see it running higher from these levels. However, Naked Brands isn't popular on the Reddit group WallStreetBets.

Penny stocks are always risky to invest in and tend to be more volatile than the markets. NAKD stock still trades way below the highs that it did in the short squeeze during the first quarter of 2021. Naked Brands looks like a good stock to buy and bet on the business turnaround and the massive cash on its balance sheet. The company had $270 million worth of cash and cash equivalents, according to the most recent update.

The stock looks bullish on the charts and has crossed above the 200-day SMA (simple moving average). The price channel was previous support for NAKD stock, but it has been a key resistance after the stock fell below the price level.

After the spike, Naked Brands' stock has moved above the 200-day SMA. If it can hold above the level, it would signal technical bullishness and take the stock even higher.