Ignore the Second Round of ‘Meme Stock Mania’ in Koss Stock

After falling back towards earth, “meme stock” investors tried to send Koss (NASDAQ:KOSS) stock back towards the moon again. On Feb. 24, shares in the headphone maker nearly tripled, from around $12 per share, to nearly $35 per share. But this second moon-landing attempt has since experienced a setback. Only a few days since reaching the $35 mark, KOSS stock now trades at around $17 per share today.

KOSS stock
Source: SiljeAO / Shutterstock.com

The volatile action is in line with the rebound in other heavily shorted stocks popular with the r/WallStreetBets community. But, while it may seem like “Meme Stock Mania, Part II” is around the corner, don’t buy into the hype.

Why? Just like the first time, there’s little to support its valuation at today’s overly inflated prices.

Like I said in my last article on Koss, that’s not to say it’s a bad company. It simply means that this audio equipment maker, in long-term declines, is likely not worth more than the $3.34 per share it closed at on Jan. 22, before the recent madness started.

This second round of madness could last longer than expected. But, counting on this to happen is more like gambling than investing. Some may see this stock as a prime candidate for another short squeeze. But, with short-interest already lower (more below), the chances of this happening look slim.

 

So, what’s does that mean for investors interested in buying this epic rebound? Ignore it! It’s a matter of “when,” not “if,” this stock craters back to single-digit prices.

KOSS Stock and a Second Round of ‘Meme Stock Mania’

As you likely know, retail speculators, such as those active on the r/WallStreetBets forum, helped to send many stocks to unsustainable prices in late January. Almost all of these were names heavily shorted by Wall Street, and therefore vulnerable to a squeeze.

In the case of KOSS stock, it wasn’t the most shorted stock out there. But, with the Koss family owning so much of it, the outstanding float (freely tradable shares) was limited. With enough retail buyers diving into this thinly traded stock, it’s no surprise we saw it go from between $3 and $3.50 per share, up to a staggering $127.45 per share.

Throughout February, however, reality set in. Early movers took profit. And, those late to the party cut their losses. It seemed as if these hyped-up stocks were gradually heading back toward their historical price ranges.

But, as we’ve seen in recent trading days, the “fun” may not be over just yet. With the most well-known “meme stocks” making triple-digit percentage moves higher, secondary “meme stocks” like KOSS stock are back in play among retail speculators.

As of this writing, it’s too early to tell whether this a second round of “Meme Stock Madness” that can send this and other similar plays up towards prior highs. But, whether or not this creates an opportunity for nimble traders to make quick gains, for most investors this isn’t something you should jump into.

Why? With its share price completely divorced from its fundamentals, buying Koss now is more like gambling than investing. And, with the odds out of your favor, this isn’t a bet you want to take.

There’s No Rationale for Buying KOSS Today

The r/WallStreetBets crowd may be diving back into “meme stocks” like this one for a second time. But, that doesn’t mean you should join in as well. Just like the first time this happened, the underlying fundamentals fail to support its current share price.

In terms of valuation, to say Koss is overvalued is an understatement. At the $30 per share mark it reached last week, Koss trades for a price-to-earning (P/E) ratio of 300x. If the company had high amounts of growth ahead, such a premium valuation could be justified. But, with sales in gradual long-term decline, that’s not the case here.

How about the potential for another short squeeze? I wouldn’t count on it. Not only has short interest come down to just 14.2% of outstanding float, with the controlling Koss family cashing in on the first run-up, there are now many more freely tradable shares in the market. This limits this second round of speculations results in shares getting back to highs set during the first round.

Putting it simply, there’s no rational reason to follow the crowd back into KOSS stock.

Bottom Line: Continue to Stay Away

When Koss shares first went wild, I said investors should ignore the charts, and ignore the noise. And now, with online speculators attempting the send this stock to the moon a second time, this advice still holds.

Anyone buying this today is gambling, not investing. With its share price divorced from its fundamentals, there’s no rational reason to buy KOSS stock right now. Continue to stay away.

On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in the article.

Matthew McCall left Wall Street to actually help investors – by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. Click here to see what Matt has up his sleeve now.


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