NAKD Stock Impacted by Potential Merger, Reverse Split

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Sep. 7 2021, Published 2:26 p.m. ET

For investors, Naked Brand Group Ltd. (NASDAQ:NAKD) hasn't been the bearer of long-term growth. Still, recent corporate changes suggest future shifts in value for NAKD stock.

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The intimate apparel and swimwear company operates under a license agreement with Authentic Brands Group, and its stock came to fruition in its latest form in 2018 after Naked merged with Bendon Limited. Now, another merger is changing the scope of NAKD stock, among other news.

Investors of NAKD stock await merger target

On Aug. 20, Naked Brands announced through a filing with the SEC that it was planning to merge with a new acquisition target. The decision comes after Naked divested from Bendon, with whom it merged originally in 2018. Bendon served as the company's brick-and-mortar arm, and Naked has since gone all-digital.

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Now e-commerce only, Naked has yet to pick a target let alone sign a DA (definitive agreement). When it inevitably takes place, the reverse merger will likely give NAKD stock the oomph it needs to move beyond its penny stock valuation.

While Naked announced a preliminary agreement on non-binding terms, the company admitted, "There is, of course, no guarantee that we will complete the deal, on the preliminary terms we have negotiated, or at all."

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Will NAKD stock have a reserve split?

Naked's share price has dwindled over the last few years in particular. While NAKD stock's trailing 12-month gain sits at nearly 230 percent in the green as of Sept. 7, the two-year outlook shows a more than an 85 percent loss in the market cap.

Led by CEO Justin Davis-Rice, Naked has undoubtedly struggled. Its current share price of $0.63 must gain some traction or else NAKD risks being delisted by Nasdaq. The exchange is able to delist any stock that falls under $1 per share for at least 30 consecutive days.

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With Nasdaq's rules in mind, a reverse stock split makes sense. For investors' reference, a reverse stock split increases the per-share value while simultaneously decreasing the number of shares available, based on a specified ratio. Naked performed a massive 1:100 reverse split in 2019 that multiplied its stock price by 100. Still, the stock is back down in penny territory.

A price prediction for NAKD stock

Given the potential for NAKD stock to merge with a new brand, many investors are holding on tight to the security. Still, it's a speculative bet that could plummet to near-zero if the deal falls through.

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Risk-happy investors are all in on NAKD stock, but the potential for catastrophe isn't deniable. The company has many kinks to work out, including its lack of a merger target. Naked's current market cap of $566.69 million is also quite low, and the company is really depending on an outsider to build its fundamentals. That's a risky place to be in, and it limits the stock's potential.

Recently, NAKD stock's correction (falling more than 10 percent) has some investors buying the dip. If you do this, just know that you're playing an uncertain game. As we saw with Bill Ackman's Pershing Square Tontine Holdings (NYSE:PSTH), a pre-merger arrangement carries risk. Granted, Ackman plans to return the $4 billion lost in that deal, but NAKD doesn't make any promises.

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