Naked Brand Group Inc (NASDAQ:NAKD), a $16.86M small-cap, operates in the consumer discretionary industry, whose sales are driven primarily by consumer sentiment and access to capital. These macro factors tend to determine the rate at which consumers purchase luxury goods. Consumer discretionary analysts are forecasting for the entire industry, a positive double-digit growth of 16.60% in the upcoming year , and a strong near-term growth of 25.54% over the next couple of years. This rate is more than double the growth rate of the US stock market as a whole. Today, I will analyse the industry outlook, as well as evaluate whether Naked Brand Group is lagging or leading in the industry. Check out our latest analysis for Naked Brand Group
What’s the catalyst for Naked Brand Group’s sector growth?
E-commerce continues to be the fastest growing sales platform for consumer discretionary goods, changing the landscape for retailers. A large number of store closures and bankruptcies illustrates the shift in consumer preferences and increasing online competition. In the previous year, the industry saw growth of 4.35%, though still underperforming the wider US stock market. Naked Brand Group lags the pack with its sustained negative earnings over the past couple of years. The company’s outlook seems uncertain, with a lack of analyst coverage, which doesn’t boost our confidence in the stock. This lack of growth and transparency means Naked Brand Group may be trading cheaper than its peers.
Is Naked Brand Group and the sector relatively cheap?
Luxury goods companies are typically trading at a PE of 22.2x, in-line with the US stock market PE of 20.2x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. Furthermore, the industry returned a similar 11.34% on equities compared to the market’s 10.47%. Since Naked Brand Group’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Naked Brand Group’s value is to assume the stock should be relatively in-line with its industry.
Next Steps:
Naked Brand Group recently delivered an industry-beating growth rate in earnings, which is a positive for shareholders. If the stock has been on your watchlist for a while, now may be the time to buy, if you like its ability to deliver growth and are not highly concentrated in the consumer discretionary industry. However, before you make a decision on the stock, I suggest you look at Naked Brand Group’s fundamentals in order to build a holistic investment thesis.