Louis Navellier built a career guiding retail investors to some of the biggest names before they became that way. Therefore, it usually pays to listen to him. So, I was surprised to see that he presented a relatively bullish case for Koss Corporation (NASDAQ:KOSS) stock.
The legacy headphone manufacturer steadily lost its relevance over the years, devastating KOSS stock. It made me wonder if Mr. InvestorPlace likewise lost his mind.
To be 100% fair, Navellier doesn’t shy away from the risks associated with this company. He bluntly warned that KOSS stock isn’t for everyone, noting that you must have “nerves of steel” to ride this “roller coaster.” Still, he argues that the equity unit has settled into a new normal. With several jurisdictions reopening their economy to full capacity, this isn’t an unreasonable statement.
Also, Navellier brought up a point that I never thought about. “One of the trends that may be overlooked as a positive for the company is the apparent end of the freebie earbud pack-ins with smartphones. Last year, the iPhone 12 released with no earbuds in the box. Now other smartphone manufacturers are following suit.”
I was still incredulous about it. Who wouldn’t put such a common freebie into their premium products? But upon quick research, it turns out that indeed, companies are abandoning free earbuds.
This confirms that I haven’t bought a smartphone recently. But more importantly for KOSS stock, this dynamic presents a revenue-generating (and I would say relevance-generating) opportunity. With the underlying company producing low-cost headphone solutions, it’s a chance to build the brand.
Still, if you’re going for this angle, I would sit back and look at the bigger picture.
Insiders Are Running Away from KOSS Stock
One of the reactionary responses to the above bullish argument for KOSS stock is changing consumer behaviors. As streaming music revolutionized the audio entertainment industry, many people are willing to pay top dollar for premium headphones.
“But there is also a demographic of smartphone buyers who resent having to pay extra for the earbuds that used to be free. They’ll buy their own earbuds but have no intention of shelling out for premium versions,” states Navellier.
I can only speak anecdotally here but he makes a reasonable statement in my opinion. You buy something for a thousand bucks or more, you expect more than a charging cable.
While Koss moving into this seeming opportunity makes for an interesting case, it doesn’t fundamentally justify exposure to KOSS stock. Do you feel that brewing anger and the need to type angrily on your keyboard? Good! Direct that energy toward the management team. They’re the ones abandoning ship.
Over the last several months, insider transactions are exclusively the domain of sell orders. Executives, including those that bear the surname Koss, unloaded tens of thousands and sometimes hundreds of thousands of shares.
I understand the urge to say, “apes together strong.” For whatever reason, social media jumped on KOSS stock, bidding it to unprecedented levels. But when the silverback is the one in cahoots with the tyrannical zookeepers, I’m not sure what the justification is for KOSS moving forward.
Let’s say we forget the social media thing. Fine. Then, we should look into the financials, which isn’t exactly enticing. While its fiscal year 2020 revenue was understandably down from the prior year, what I don’t get is the quarterly revenue trend, beginning from the third quarter of 2020.
Between Q3 to Q1 2021, the posted sales were $5.21 million, $4.93 million, and $3.99 million. If Koss products were so compelling, they should be going up as personal and home entertainment sector sales blossomed during the pandemic-fueled lockdowns.
Just Read the Obvious Signals
But if you want my opinion, I think you need to go back to the insider selling. I can parse the details regarding revenue trends. Navellier can do the same regarding consumer behaviors over getting shafted out of earbuds. At the end, these are estimations.
But what’s not an estimation is the insider selling. That’s a fact. To me, it’s problematic when the fire chief is the one lighting the match. Honestly, if KOSS stock was such a great deal, why aren’t the execs jumping all over it?
Instead, they’re doing their best to run away from the equity units of their own company. That’s akin to an overeager used car salesman. Some signs are so obvious you must pick up on them or risk serious damage.
On the date of publication, Josh Enomoto 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.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
