Naked Brand Group Ltd (NASDAQ: NAKD) is flying yet again today, following up on the dramatic gains the stock has seen as of late. It’s hard to imagine that at the turn of the year, the stock was trading at just $0.22 per share.
The company had to release overwhelmingly positive news, right? Wrong!
The dramatic gains seen in Naked Brand Group have more to do with the Wall Street Bets crew that’s sticking one to the big guy in the David and Goliath battle currently taking place on Wall Street.
Here’s what’s going on:
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- Retail Investors Have Sent Naked Brand Group Stock on a Ride
- Why Wall Street Bets Redditors Have Targeted NAKD Stock
- Risks to Consider Before Buying NAKD Stock
- Final Thoughts
Retail Investors Have Sent Naked Brand Group Stock on a Ride
As mentioned above, Naked Brand Group was trading in the $0.20 cent range as 2020 turned into 2021. Earlier this year, the stock had climbed to be worth around $3 per share. While it has pulled back a bit, it seems as though we’re going on another wild ride with the ticker.
So, what’s the deal with NAKD stock?
Retail investors have taken control over the ticker. In the slurry of short squeezes that resulted in dramatic gains in iconic household names like GameStop, AMC, and BlackBerry, this tiny stock seemed to grab the attention of the crew at the helm of it all, Wall Street Bets redditors.
Essentially, this group of Reddit users has been looking for stocks that hedge funds have heavily shorted. Once they find them, they band together and purchase massive amounts of shares to push the price up, forcing hedge funds out of their positions in short squeezes.
Essentially, Wall Street Bets Redditors are working to take control back from hedge funds.
Why Wall Street Bets Redditors Have Targeted NAKD Stock
This is the big question. Wall Street Bets Redditors have been attacking hedge funds that short iconic companies like GameStop, AMC, and BlackBerry. So, what does this crew want with a microcap stock like NAKD. One that’s far from a household name.
In my view, the Naked Brand Group target has more to do with the name of the company than anything else.
Wall Street Bets Redditors have been attacking naked shorts, which is when a short position is made without shares to borrow. While naked shorting is illegal, due to the fact that it takes days for borrowed shares for short positions to clear, shares are often borrowed more than once, meaning that any borrow after the first is a naked short.
At the same time, NAKD is a heavily shorted stock.
What better way to make a statement against naked shorting than to effect a short squeeze in a stock representing a company called “Naked” Brand Group?
While the company is far from a household name, pushing shorts out of NAKD is more of a symbolic move, and one that has proven to be incredibly profitable for those who have taken part.
Risks to Consider Before Buying NAKD Stock
If you’re going to jump in on the NAKD stock run, you’re going to have to be willing to accept risk. After all, there’s risk present in any investment you make. When it comes to Naked Brand Group, the most significant risks include:
- Pennies. First and foremost, Naked Brand Group is a penny stock. Like most other penny stocks, the company is operating a business model that hasn’t proven profitable, making it a widely speculative play.
- Volatility. As a penny stock, NAKD is subject to high levels of volatility. While the volatility is enjoyable on the upswing, it can also be very painful when things reverse and head in the downward direction.
- Capital Risk. As a company that has yet to produce a profit, NAKD is dependent on the money it has in the bank for survival. If these funds don’t prove to be enough to get the company through to profitability, it will likely look to public markets to raise funds, resulting in dilution of existing shareholder value and likely significant declines.
Naked Brand Group is by no means a strong long-term investment, at least how it sits today. The stock is riddled with risk, and could experience significant losses in the near future.
Nonetheless, as a short-term play, NAKD stock is one that’s hard to ignore. We’ve seen what retail investors can do in terms of forcing short squeezes and sending stocks for the top, and there’s no reason to expect that they will stop squeezing the shorts out of Naked Brand Group. All in all, while this is a very risky play, NAKD stock is one to watch closely.