Chances are, people who don’t trade stocks mostly know Koss (NASDAQ:KOSS) as a maker of headphones and headsets. For market participants, however, KOSS stock is largely known as a “meme stock.”
It seems like ages ago that the shares were available for $2 and change. It was a simpler, less volatile market – and I’m only talking about six months ago.
The next thing you know, in 2021 KOSS stock is seeing wild price fluctuations.
It’s been posited that the stock’s unexpectedly heavy trading volume is due to the frenzied activity of some folks on the Reddit discussion board r/WallStreetBets.
But what about the company itself? It appears that Koss’s sales aren’t stellar – and the headphone maker’s CEO has more excuses than good news to deliver.
A Closer Look at KOSS Stock
Before the investing community can take KOSS stock more seriously, some numbers will need to improve.
For example, on a trailing 12-month basis, the company has earnings per share of 4 cents. That might be acceptable for a penny stock, but not for stock that costs $25.
Moreover, KOSS stock has a trailing 12-month price-to-earnings ratio of 664.55. Value-focused investors might balk at the idea of owning a stock with such a high P/E ratio.
Besides, this was a $2-and-change stock before the Reddit trading craze accelerated in 2021. It’s easy to forget that fact when the shares have traded in the $20s, $30s or even higher.
Additionally, KOSS stock might be too volatile for risk-averse investors. The stock zoomed up to $40 on June 2, for example, only to retreat to $25 just a few days later. It will open today at about $24.
Hence, I recommend maintaining a small-sized position, if you choose to invest at all.
Lackluster Numbers
Behind every meme stock is a real company. Prospective investors should always conduct their due diligence and make sure that the company is on solid financial footing.
So, let’s examine Koss’s third-quarter results, which represent the quarter ending on March 31.
Koss’s sales for the third quarter were $3,987,452, which might sound great on the face of it. However, this figure represents a 16.7% decrease from the comparable three-month period of a year ago.
Furthermore, Koss posted a quarterly net loss of $474,168. That’s quite a bit worse than the net loss of $97,373 for the third quarter of last year.
Even if we change the time frame, there is still bad news to report. Thus, Koss’s sales for the nine months ending March 31 decreased by 1.7% compared to the same period last year.
Now, let’s see what the company’s chairman and CEO, Michael J. Koss, had to say in response to these lackluster numbers.
A Flurry of Excuses
If you were hoping for a grand plan to turn the situation around, you might be disappointed.
What we actually got from Koss (the CEO, and therefore the company as well) was a flurry of excuses:
- “Net sales in the first nine months had a different composition than last year.”
- “We saw a shift to US distributors, European distributors and domestic direct-to-consumer sales and a sharp decline in US mass retail.”
- “Domestic mass mart retailers typically yield lower gross margins than the other channels.”
- “The net decline in the quarter’s sales revenue can largely be attributed to the sporadic service disruptions of freight carriers.”
- “The net loss in the quarter included some unusual non-recurring items that increased administrative costs.”
Koss’s press release was brief, to-the-point and lacking accountability.
There was a bare mention of improvement in gross margins. However, that’s a small piece of a much bigger fiscal puzzle – and some of the most important pieces appear to be missing or damaged.
The Bottom Line
For the time being, KOSS stock’s meme-stock status might keep it afloat.
In the long run, however, the investors will likely insist on a company that can financially execute – and a Koss boss with answers, not excuses.
On the date of publication, David Moadel 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.
