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Why Naked Brands Group Rocketed 33% in August

By Reuben Gregg Brewer – Sep 3, 2021 at 10:25AM

Key Points

  • The Australian undergarment company announced that it may have a big announcement to make -- "may" being the operative word.

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The company was looking to make a deal and it seems it's found a suitable partner. Investors cheered the news.

What happened

Shares of Australian undergarment company Naked Brands International (NAKD) rose a huge 33% in August according to data provided by S&P Global Market Intelligence. The stock was basically bumbling along until late in the month, when it held its annual shareholder meeting. Investors were pleased by the update.

So what

The first thing that investors need to recognize with Naked Brands is that it has gotten caught up in the Reddit investment craze. That means investor activity may be driven more by emotion than by actual fundamentals. This penny stock is not for the faint of heart.

The words safety first with a person giving a thumbs up sign in the background.

Image source: Getty Images.

That said, the biggest news from the company's annual meeting has also made it a special situation play. Truthfully, it was a special situation before that, as it recently exited its brick-and-mortar operations to focus exclusively on its digital business. The company's physical stores were bleeding red ink, so that move made sense, even if the still recent change had yet to start showing up in the retailer's financial results.  However, at the annual meeting, the company announced that it had also found a partner for a merger or sale of the company. That's a much different proposition and the stock shot up after the meeting, as investors likely hope a deal here will come at a premium price. 

There's only one problem. There's not much information yet about what's happening on the deal front, so it's hard to handicap this one. Even during the annual meeting the company noted the discussions it's having could amount to nothing. All in, only the most aggressive investors should be speculating here.

Now what

Until there's more news about the potential sale or merger of Naked Brands, most investors should probably avoid this stock. The trading action is being driven more by emotion than anything else at this point, making it a material risk for long-term investors to get involved.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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