Another Short Squeeze Could Be Coming for Naked Brands (NAKD) Stock

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Aug. 20 2021, Published 9:49 a.m. ET

Naked Brands (NAKD) stock was trading higher early on Aug. 20, though it's remained at a fraction of its all-time high of $3.40. Why is NAKD stock going up, and is another short squeeze coming for this penny stock?

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Naked Brands stock was among the meme stocks targeted by traders on Reddit group WallStreetBets. Like other meme names, it's gone through a boom-bust cycle—it soared, tumbled, and then settled slightly above its price before the Reddit magic.

Meme stocks

Like NAKD, GameStop and AMC Entertainment were targeted by WallStreetBets. GME stock has been hovering around $150 and AMC has been in the $30s. Most meme names went overboard with selling shares amid the Reddit frenzy, and NAKD stock is no exception.

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naked brands stock
Source: TIKR

The company had $270 million in cash on its balance sheet according to its most recent update, and no debt. That’s a lot of cash for a company with a market cap of around $460 million and an enterprise value of $190 million (as of Aug. 19).

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Why is NAKD stock going up?

NAKD stock is rising after the company's annual shareholder meeting. Investors have been waiting for an announcement on a possible acquisition, and during the event, Naked said it had identified a target.

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“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. It's worth noting, however, that there's no guarantee the deal will sail through.

The stock is also rising as markets approve its investment plans. Earlier this year, Naked Brands streamlined to focus on its Frederick's of Hollywood brand's e-commerce operations. It also intends to use excess cash for strategic acquisitions.

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Similarly, fellow meme name Sundial Growers now has a flourishing investment business. It has more cash than Tilray, the largest cannabis company, and has been investing this money and its earnings even as its core cannabis business bleeds.

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Naked Brands' stock forecast

The forecast for Naked Brands stock looks positive, and the stock looks like a good play based on its potential acquisitions and pivot to e-commerce. The stock could react positively once the company reveals more details about its acquisition. NAKD investors' patience is likely to pay off.

NAKD stock's short squeeze

NAKD's short volumes look high. On Jul. 30, 5.7 percent of Naked Brands’ float was shorted, and according Fintel, NAKD had a FINRA short volume ratio of almost 54 percent on Aug 19. An update on its acquisition could just be what NAKD stock bulls are waiting for to trigger a short squeeze.

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