It’s no secret that intimate apparel and swimwear retailer Naked Brand Group (NASDAQ:NAKD) struggled after the onset of the Covid-19 pandemic. As a result, NAKD stock holders faced a challenging year in 2020.

By the time my bullish article about Naked Brand was published on March 19, 2021, the share price was already down to 92 cents. I thought surely, a recovery above the $1 level was imminent.

Boy, was I wrong about that. Apparently, my crystal ball was malfunctioning as NAKD stock continued to drift downwards, making my bull thesis even less credible.

And then, one of my colleagues at InvestorPlace authored an article that reminded me of just how significant the $1 level actually is. As we’ll see, it’s not just a matter of trader psychology – there’s a compliance issue here that could cause some real problems.

A Closer Look at NAKD Stock

I will give the NAKD stock bulls some credit. They made a valiant effort to push the stock price above $1 and keep it there in January.

It was a brief rally, however. By early March, Naked Brand shares were back below $1. And as of June 11, they were trading at around 75 cents.

For short-term traders, there might be a high-risk opportunity here. Every so often, NAKD stock spikes without warning.

This could happen again, so a small position could generate quick profits if your timing is good.

Long-term investing is a different story entirely. With this strategy, earnings are of paramount importance – and Naked Brand doesn’t seem to pass muster on that front.

Currently, Naked Brand has trailing 12-month earnings per share of around -44 cents. That’s deeply negative for a 75-cent stock.

Hence, in case I didn’t convey this enough already, caution is definitely advised.

Compliance Issues

Not long ago, InvestorPlace contributor Will Ashworth wrote a horror story about Naked Brand that sent a chill down my spine. Unfortunately, it’s non-fiction.

But hold on – I’ll provide some background info first. The Nasdaq Exchange has a requirement that listed stocks must maintain a minimum $1-per-share bid price.

NAKD stock fell below that threshold last year. So, on Nov. 27, 2020, Naked Brand Group was “granted an additional 180-day period, or until May 24, 2021, to regain compliance” with Nasdaq’s minimum-$1-per-share rule.

Clearly, getting delisted from the Nasdaq Exchange would be bad news for Naked Brand’s stakeholders.

Generally speaking, the trading community considers a stock being relegated to the over-the-counter markets as a major demotion.

Fast-forward to late April of this year, and Naked Brand disclosed that it had received a notice of minimum-bid-price-requirement non-compliance from the Nasdaq Exchange.

The company has until Oct. 25 to regain compliance with the minimum-bid-price requirement.

Nasdaq’s Bad Books

Most likely, Ashworth had this unfavorable development in mind when he predicted that the “stock will likely execute a reverse split to get out of Nasdaq’s bad books.”

Naturally, Naked Brand would prefer that the investment community focus on the company’s transformation into a pure-play e-commerce company.

That’s all fine and good, but it doesn’t solve the compliance issue with the Nasdaq Exchange.

As Ashworth points out, a reverse share split (if it happens soon) would be the company’s second in less than two years. Personally, I would consider that to be a bad sign.

And, I wouldn’t be surprised at all if a reverse split happens in the near future. It would be a quick solution to the Nasdaq Exchange compliance problem.

Whether it would solve any of the company’s problems on a permanent basis, is a different matter entirely.

The Bottom Line

It seems as if there are two possible endgames for NAKD stock.

One would be getting kicked to the over-the-counter markets.

The other would be enacting another reverse share split.

Neither of these choices makes me hopeful for Naked Brand’s shareholders. Getting out of the Nasdaq Exchange’s “bad books” today, doesn’t ensure a more viable business for tomorrow.

The stock market can be unpredictable, volatile, and sometimes totally nonsensical. InvestorPlace.com strives to cut through the noise and bring you information on what matters – and how it impacts your portfolio. We deliver thoughtful coverage on everything from stocks to cryptos to pre-IPO investments. So whether you live and breathe breaking stock news or expect your stocks to pay you, InvestorPlace.com has your back.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

NAKD shares were trading at $0.74 per share on Monday morning, down $0.01 (-0.95%). Year-to-date, NAKD has gained 285.42%, versus a 13.75% rise in the benchmark S&P 500 index during the same period.

About the Author: David Moadel

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. More...

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