Naked Brands (NAKD) is among the many meme stocks that were pumped by social media groups. It was up almost 19 percent on July 20. Many investors wonder why NAKD stock is going up and whether it will rise more or fall now.
Meme stocks have seen a boom-bust cycle in 2021. Naked Brands made a 52-week high of $3.40, but it's currently down over 82 percent from the peaks. There have been varying drawdowns in other meme stocks as well.
Why NAKD stock is going up
NAKD stock rose sharply on July 20 but was trading lower in the premarket on July 21. The rise was due to buying interest from traders on social media platforms. There was a successful short squeeze in Naked Brands stock earlier in 2021 and traders on social media platforms want another squeeze now.
There was a splendid rally in all meme stocks including AMC Entertainment on July 20. While many Wall Street analysts see most Reddit stocks as speculative, there's a big army of retail traders that sees them as their chance to get rich.
Social media platforms are filled with users' comments on how traders have made fortunes by going long on these stocks. On the other side of the spectrum, hedge funds have lost billions betting against meme stocks like GameStop and AMC Entertainment.
Is another short squeeze coming in NAKD stock?
According to the data from Fintel, NAKD stock had a short volume ratio of 36 percent on July 20, which was up almost 10 percentage points over the previous day. The short volumes look juicy enough to trigger a short squeeze. That said, we’ll need some positive news flow to stimulate the buying in Naked Brands stock.
Naked Brands stock forecast on Reddit
Currently, NAKD stock isn't very popular on Reddit group WallStreetBets. However, there's a subreddit r/NAKDstock to discuss the stock. Like other meme stocks, the members of the community are talking about taking the stock to the moon. A post on the group talked about the increase in short volumes in Naked Brands. Higher short interest combined with strong buying support can trigger a short squeeze, which we’ve seen with many meme names.
Naked stock looks like a good buy
Sentiments can drive a stock's short-term price action. However, in the medium to long term, stocks trade based on their fundamentals. Looking at Naked Brands, like all meme stocks, it went overboard selling its shares as the stock rose. The company has $270 million in cash and no debt.
So far, Naked Brands has transformed its business and has exited the legacy brick-and-mortar business. Now, it's focusing on online sales and wants to grow the Frederick's of Hollywood brand. The company is also looking at acquisition opportunities given the massive cash on its balance sheet. The stock looks like a good turnaround stock to buy.
Will NAKD stock rise more?
After adjusting for $270 million cash, we get an enterprise value of around $272 million for Naked Brands. The company doesn’t generate much revenue right now. However, the sales and profitability should grow as it ramps up its e-commerce operations. Like all penny names, NAKD is a risky bet. Betting on the company might be worthwhile for investors.
Will NAKD stock reach $1?
If the current momentum continues, NAKD stock could move towards $1. The stock hasn’t traded above that level since March. Positive updates on the company’s transformation could help trigger a rally and push it towards the $1 price level.
Will Naked Brands stock do a reverse stock split?
Naked Brands stock trades below $1 and if it continues to do so the company will have to go for a reverse stock split to meet the minimum listing requirements. While a reverse stock split doesn't change anything fundamentally for the stock—just like a split—stocks tend to fall on the news of a reverse stock split. Ashford Hospitality is a prime example as it tumbled on the news of a reverse stock split.