Milwaukee-based headphones manufacturer Koss Corporation (NASDAQ:KOSS) is a name that is surfacing quite a bit of late in the investment world. It’s gaining attention as a part of the Reddit-induced retail trading frenzy. KOSS stock continues to witness dramatic trading swings, and its price has shot up over 70% in the past month. It offers nothing for long-term investors, though, with a deplorable outlook and weak fundamentals. However, with a short interest float of almost 21%, it could be a great swing trading play.
The Reddit-induced short squeeze has been one of the biggest stories of 2021. With the investigations underway against Reddit, and retail trading platforms taking action, it appeared that we’d seen the last of it. However, with another round of stimulus checks, a similar squeeze likely might be in play again. In such a situation, day traders could stand to make a lot of money from swing trading. This is perhaps why lackluster investments like Koss are making the rounds. Let’s dive a little deeper better to understand KOSS stock’s positioning at this time.
Up until January this year, you would consider KOSS as a penny stock. KOSS stock has languished below $5 for several years now due to its inability to expand revenues. The company’s average 3-year revenue growth is over negative 8%. However, its abominable state made it an excellent target for short-sellers.
The chart above shows the price performance of KOSS stock for the past three months. The stock rose from penny stock territory to a close of $64 on Jan. 29. In fact, it reached an intra-day high of more than $127 on Jan. 28. Though it tanked the next day, it closed out the day at $64.
The stock had dropped considerably from its January highs, when its short interest float exceeded 38%. The float subsequently dropped to below 15% in February but is now picking up again. Finviz suggests that KOSS stock’s short interest float exceeds 38% at this time.
KOSS stock is unbelievably overvalued at this point, with a forward enterprise value-to-sales value of 11.4, exceeding the sector median by over 500%. On the flip side, if we look at its competitor in Turtle Beach (NASDAQ:HEAR), its EV to sales multiple is just 1.1. On top of that, its 3-year average revenue growth is over 34%. With a company like Turtle Beach available, it’s virtually impossible for long-term investors to get excited about KOSS stock.
Outlook on KOSS Stock
Koss’s outlook looks grim at this point. It has been unable to evolve over the years, which is why its revenue growth remains stunted. Big tech companies such as Apple (NASDAQ:AAPL) have taken up a significant chunk of the market share from the seasoned players in the headphone market. Competing with them is a tall order, but Koss’s peers, such as Turtle Beach and others, have found success in specific niches. Koss, however, has been unable to solidify its market share in any area.
Its revenue rose 6% on a year-over-year basis in the first six months of fiscal 2021. A lot of this growth is attributable to the stay-at-home trends which boosted e-commerce sales. Additionally, its gross margins improved, and it posted a net profit of $635,819 for the first half of fiscal 2021. However, a significant chunk of those profits was due to forgiven loan during the pandemic.
The Covid-19 induced tailwinds are fading away with every passing day and are likely to impact its revenue growth. At this point, the company has no long-term growth drivers in a highly competitive industry.
KOSS stock has benefited heavily from the short squeeze, and it appears that the gains aren’t ending anytime soon. Its short-float is still high, and therefore, its price will continue to remain volatile. Retail traders can take advantage of these swings and make considerable profits in the process. However, it offers little or nothing for long-term investors.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.