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Naked Wines (LSE: WINE) is a penny share on the move. Since the start of 2025, it has surged by 66% to reach 79p.
However, longer-term shareholders in the online wine retailer are still nursing a heavy hangover. That’s because the stock is down 91% since reaching a high of 888p during the pandemic.
Let’s take a closer look at Naked Wines to see if it might be worth considering right now.
Direct-to-consumer model
Naked Wines has an interesting business model. Customers (called ‘Angels’) pay £25 a month into their account and the firm invests it in over 300 independent winemakers, cutting out the middleman. In return, it gets exclusive wine labels at insider prices and passes on savings to customers.
Since parting ways with Majestic Wine in 2019, the company is a pure online player with no physical retail stores. Interestingly, the US is now its largest market, along with the UK, with Australia a smaller contributor.
Business boomed during the pandemic when online wine demand soared. However, growth normalised after Covid, and margins took a big hit in 2022/23 when surging energy prices resulted in higher glass and packaging costs.
Turnaround strategy
Revenue for FY22 came in at £350m, with a small profit. However, in FY25 (which ended in March), revenue was only £250m, with a net loss of nearly £5m. This highlights how the firm has struggled for consistent profitability.
The reason for the share price uplift this year relates to a turnaround strategy unveiled in March under newish CEO Rodrigo Maza. The firm hopes to grow revenue in the 5%-10% range, while delivering annual adjusted earnings before interest, taxes, depreciation and amortisation of £9m-£14m.
It will focus investment on high-value Angels rather than pursue a growth-at-all-costs strategy. This should reduce customer churn.
City analysts are on board and expect a return to profitability this year. For FY27, a net profit of around £3m is forecast, giving a forward price-to-earnings ratio of 27.
Naked Wines had a net cash position of £30m in March. And today (11August), it announced a share buyback worth up to £2m. So there’s quite a bit of positivity being built up right now.
Falling Angels
In FY21, there were 886,000 Angels. However, this has fallen to just under 600,000. While a retention rate of 75% last year suggests a loyal core, I do worry that the membership base is declining in both the UK and US.
Speaking personally, when I’ve had Naked Wines promotional material through the letterbox, the introductory offers do seem very tempting. Unfortunately, I tend to get headaches after drinking vino nowadays — the dreaded ‘wine-graine’ — so I’m not really the target audience. I have no experience as a customer.
However, it’s definitely interesting for the committed wine lover and there are many millions of those in the Anglosphere. The long-term market opportunity is certainly there.
If Naked Wines can achieve consistent profitability, while also buying back shares, I think the stock could still end up looking cheap from here. But many consumers are currently under financial pressure, so it could prove challenging to grow the customer base in the near term.
Weighing things up, I’m going to pass on Naked Wines. I think there are safer turnaround stocks to buy for my portfolio today.
