On Thursday, Nov. 25, 2021, multiple generations of the Koss family will no doubt gather around the family gathering spot and give thanks for the events that occurred earlier in the year that enabled insiders of Koss (NASDAQ:KOSS) to sell KOSS stock for thinkable profits.
On Jan. 22, the stereo headphones maker’s stock closed trading at $3.34. Four days later its shares galloped all the way to an all-time high of $127.45, before slowly returning to earth over the next three weeks.
As of market open of Feb. 24, KOSS stock is trading around $12 and seems ready to re-enter the single digits, where it’s traded for the better part of 13 years.
They say when opportunity knocks, you let it in. The Koss family did just that. Kudos to them for recognizing the Reddit hysteria for what it was: a once-or-twice-in-a-lifetime chance to cash in on all the hard work that’s gone into 63 years at the Koss family business.
While this is good news for the Koss family, it might not be your best bet until KOSS shares are once again penny stocks.
How Much Did the Koss Family Make From KOSS Stock?
According to CNBC, family members sold $31 million of Koss stock between $19 and $60 a share during the Reddit short-squeeze frenzy at the end of January. These sales were more than the entire market capitalization of the company prior to blasting off to $127.
At its current price, the stock sales represent approximately one-third of its market cap. At its all-time high, the Koss family’s 74.71% ownership stake as of August 2020, would have been worth $705 million [based on 7.4 million shares]. Today, if you assume the family didn’t sell any shares, the stake is worth $67 million.
Hey, I’d take that every day of the week and twice on Sundays.
Going through Koss’s Securities and Exchange Commission (SEC) Form 4s, from Jan. 27 through Feb. 5, Chief Executive Officer Michael J. Koss and Vice President of Sales John Koss Jr. acquired 515,000 shares through the vesting of options and sold 731,000, for net sales of 216,000.
Most of the vested options were granted at prices between $1.95 and $2.42 and sold for between $19 and over $60.
The best part about the sudden surge from the Koss’ perspective is that they got to benefit financially while maintaining complete control of the business. That’s a win/win in my book.
That doesn’t mean you should buy KOSS stock.
What’s Koss Worth?
As I said earlier, it’s traded in single digits for 13 years. Most of those years it was under $5, the ceiling price for a penny stock. So, let’s start with $5.
The latest Schedule 13D from Feb. 1, 2021, says there were 8.4 million shares outstanding. At $5, you’re talking about a market cap of $42 million. At the end of Q2 2021, it had net cash of $1.9.4 million for an enterprise value of $40.1 million. Given trailing 12-month free cash flow (FCF) of $1.7 million, it would have an FCF yield of 4.2%.
On the plus side, FCF has never been higher. The downside is that it’s trading around $12. That puts the actual FCF yield at 1.7% based on an enterprise value of $100 million.
Needless to say, every financial metric that you might use to evaluate Koss stock, screams expensive. Its price-to-sales ratio is 5.2x at the moment, five times its five-year average. Further, its enterprise value between 2016 and 2020 stayed in a tight range between $12 million and $25 million. At four times that early in 2021, it’s due for a comedown.
InvestorPlace’s Louis Navellier recently discussed why “Koss is a bit player in a headphone industry that’s dominated by Apple.” He compared Apple’s (NASDAQ:AAPL) AirPods over-ear headphones to Koss’s KPH7s, suggesting that the $519 difference in retail price between the two tells you all you need to know about the aspirational nature of each product.
To me, it would seem sensible for the Koss family to wait for the stock to return to its penny-stock roots, and then use some of its recent largesse to take the company private.
There’s no need for a business of this size and description to remain public. Thanks to Reddit, it can do so.
For anyone else, I’d move on. As my colleague said, there’s nothing to see here.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.