Koss Corporation (NASDAQ:KOSS) started off 2021 as a classic example of a meme stock. The headphone manufacturer has settled into a niche of selling inexpensive headphones and earbuds through discount retailers, online direct, and programs like prison sales. Shares had been trading around the $2 range for five years. In January, with no catalyst other than the actions of Reddit’s infamous retail traders, KOSS stock rocketed over 1,600% in just three sessions. KOSS closed at $64.00 at its peak on January 29. Even after the inevitable correction, shares are still up nearly 614% so far in 2021.
After the initial correction, shares didn’t drop back to $2, instead they stabilized around the $20 level. With KOSS stock currently trading near $24 after a rally that started near the end of May, is now the time to consider an investment in this unusual 2021 success story?
KOSS Stock: Meme Stock Showing Staying Power
Back in February, I was a little dismissive of Koss stock. At the time, it seemed like a classic meme stock, doomed to deflate once the Redditors had finished with their fun. However, KOSS has demonstrated surprising staying power. At the worst of the correction phase, shares closed at $11.90, but they soon stabilized around that $20 baseline.
Its worth noting that despite its popularity, KOSS stock is primarily held by company insiders and institutional investors, at 69.8% and 7.5%, respectively. Koss family members have been selling off some shares this year to take advantage of the huge gains. However, the fact that so many shares are still in the hands of company insiders suggests they remain confident in the company’s prospects.
KOSS Stock: Shipping Challenges Causing Short-Term Pain
When Koss released its second-quarter results in January, they helped to add fuel to the fire. With more people working and learning from home, sales of the company’s earphones and headphones were up 18.4% for the quarter. That doesn’t sound like a huge increase compared to what some companies were reporting, but a double-digit increase was big news for Koss. In addition, a shift to consumers buying direct online instead of in-store increased the company’s margins.
The next day, shares closed at $64.00 for a 52% single-day gain. That also turned out to be the peak of the unlikely seven-day run for Koss stock.
On May 12, Koss released its Q3 numbers, and the story was very different from Q2. Sales were down 16.7% for the quarter. The company reported margins continuing to improve as the shift to online sales showed no sign of letting up. That was the good news. The bad news — resulting in a loss per share of 6 cents — was a factor that should be short term. Like many companies, Koss felt the impact of freight disruptions. You can’t sell what it still stuck on a container ship. As the global shipping situation improves, so should sales for Koss.
Smartphone Makers Ditching the Pack-In Earbuds
Koss was an innovator in the headphones space. I say “was” because the company’s time in the spotlight started in 1958, when it released the world’s first stereo headphones. Koss headphones were still a big deal in the 1970s and even into the 1980s. However, they were supplanted by the Walkman (with its own headphones) and then the iPod and iPhone — both of which came with their own earbuds.
Koss earbuds and headphones are the furthest thing from aspirational these days. They are best known as being cheap.
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.
Smartphones are at the center of the streaming music revolution. Buyers still want earbuds. Many will pay a premium for products like the market-leading AirPods Pro. 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.
With a recognizable brand name and dozens of earbuds and headphones priced under $50, Koss is in a good position to grow its sales thanks to the elimination of those pack-in earbuds.
The company is also going after the nostalgia crowd (the same ones that buy turntables and record players) with a vintage-inspired Retro headphone line. And if a few people also drop $499.99 for a pair of Koss electrostatic headphones, that’s not going to hurt either.
Bottom Line on KOSS Stock
Koss isn’t for everyone. The first few months of this year burned many Reddit investors. Unless you have nerves of steel the intense roller coaster action probably scared you off. However, KOSS stock has settled down to a new normal. There are even some potential tailwinds in improving margins and the phasing out of free pack-in smartphone earbuds.
Now might be the time to consider investing in this Portfolio Grader “A” rated stock.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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