Naked Brands (NAKD) stock has whipsawed in 2021 like most of its meme stock peers. The stock rose sharply last week amid renewed optimism towards the prospective business combination. Is NAKD stock a good investment and how will the upcoming merger impact its long-term outlook?
First, we should understand that like fellow meme stocks, Naked Brands went on a share selling spree and capitalized on the Reddit mania. It had $270 million of cash and no debt, according to the most recent update. Now, that’s a lot of cash for a company whose market cap is only about $618 million.
Why is NAKD stock going up?
NAKD stock has been going up amid optimism about the merger candidate. The company intended to use the massive cash pile for strategic acquisitions. In August, Naked Brands revealed that it found a suitable company for an acquisition even though few other details were provided. Now, it has revealed some more details about the acquisition, which isn't final yet.
NAKD merger news
According to Naked Brands, “after extensive searching and due diligence,” it has found an opportunity in the clean technology sector. However, the company added that while it has made “significant progress,” there isn't assurance that a definitive agreement will be signed. Also, there isn't assurance that the business combination will close even after the definitive merger.
These are the usual boilerplate disclaimers that companies provide when considering a merger. The main question is, should Naked Brands be acquiring a clean technology company?
Is Naked Brands a SPAC or an intimate apparel seller?
When Naked Brands raised the money, the assumption was that it would use the money to grow its intimate apparel business organically and inorganically. However, the news of the business combination in the clean technology industry has made NAKD stock sound like more of a SPAC than an intimate apparel seller.
This isn't to suggest that the clean technology industry doesn't have bright prospects. If anything, the long-term outlook for the clean technology sector is a lot more bullish than Naked Brands’ current core business of selling intimate apparel online.
NAKD stock forecast 2025?
The 2025 forecast for NAKD stock looks positive. The company has already exited the perennially lossmaking brick and mortar retail operation. Now, it's the exclusive online seller of intimate apparel brand Fredericks of Hollywood. According to Allied Market Research, the intimate apparel market is expected to rise at a CAGR of 8.1 percent between 2018 and 2025 and reach $325 billion by 2025.
The real value add for Naked Brands investors would come from the proposed investment in the clean energy sector. While we don’t have many details about the company that NAKD is targeting for a business combination, it said that it “is a market leader with cutting edge patented proprietary technology.”
Is Naked Brands stock a good investment?
Naked Brands stock could be a good investment if it can achieve the business combination at attractive valuations. A lot of hyped companies in the green economy are trading at a significant discount to their recent highs.
However, this also means that Naked Brands should be able to negotiate the deal at favorable terms now. Overall, it might pay to be patient with NAKD stock and hold it for the long term. Bulls already see NAKD stock as the next GameStop (GME).