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Another GameStop trade is in the works. This time it's headphone maker Koss Corp. (NASDAQ: KOSS).
Shares of Koss stock have soared more than 1,000% in the last three months. Over the past year, the total gain is over 2,500%. Even with this surge, the stock trades for just $26 a share, making it an affordable entry point for just about any investor.
And with eye-popping numbers like these, investors from Wall Street to Main Street are taking notice.
But is this a flash in the pan or a stock that can run higher?
Koss Stock Isn't Worth Touching
If you were early in this stock and banked some of these gains, congratulations. You have once-in-a-lifetime profits thanks to those manipulating the stock higher.
If you are new to the party, look elsewhere.
In the early 1970s, Koss was the leader in headphones for consumer electronics. It decided that its high degree of competence in the headphone market meant that it could probably do very well in the consumer electronics market as well.
It was wrong.
It was a disaster, and the company filed for bankruptcy in 1984.
In 2010, it had to restate five years' worth of finances when it was discovered that a VP of finance had embezzled over $30 million.
It seems like if something could go wrong for Koss, it did.
It has survived, but it has not grown over the last decade.
It has lagged other companies in the headphone market in recent years, and the price of Koss shares reflected that – until the madness of 2021 hit the markets.
Koss Isn't GameStop Either
After years of trading at single-digit prices, Koss shares gained the Reddit and Robinhood trading crowds' attention, and their buying pressure pushed the thinly traded company to over $120 at the peak.
We can argue all day about whether the officers and directors at Koss are any good at the headset business these days, but they sure do know an opportunity to personally cash in when they see one.
They have sold millions of dollars' worth of stock as the gamblers squeezed the stock price higher.
Many of them executed stock options that were worthless when the year began and sold them for massive profits.
The stock is still trading at about eight times the price of the shares on Dec. 31, 2020.
This gives the company a market capitalization right now of $192 million.
Koss had total sales of less than $20 million over the past year and total profits of less than $1 million.
The stock is trading at 296 times earnings and 10 times sales.
Compare to Turtle Beach Corp. (NASDAQ: HEAR), the current leading headphone company's stock. Turtle Beach has $417 million in sales and has earned almost $40 million in profits over the past year.
Turtle Beach shares trade at one times sales and just 12 times earnings right now.
While Koss has seen sales decrease by 25% a year over the past five years, Turtle Beach shares have grown by almost 20% annually.
No hedge funds were buying shares of Koss in the final quarter of 2020.
Thirty-one hedge funds were buying shares of Turtle Beach as the market leader saw a sales explosion thanks to the release of new gaming consoles by Microsoft and Nintendo in the quarter.
If you are buying into Koss right now, you are signing on for a rousing game of pass the burning match. Someone will get burned, and you are betting that you can sell your shares to someone else at a higher price than you paid before the stock goes back into oblivion.
And don't think this stock can be resurrected like GameStop Corp. (NYSE: GME) or AMC Entertainment Holdings Inc. (NYSE: AMC). There are no options traded on Koss, so the option market makers cannot be squeezed as they have done with those two stocks.
Many of the shorts in Koss have covered, so it is improbable a second squeeze happens.
Even if it does, if you are not in front of your screen all day, when the inevitable breakdown occurs, your position could get crushed.
Trying to jump into Koss right now carries far more risk than potential reward.
Koss is not a great company. It is an OK company that has managed to survive a long time, but it is not growing, and it will not grow at a high level in the foreseeable future.
If you are the type that's willing to bet it all on a plow horse at 100 to 1 running in the Kentucky Derby, then Koss is the stock for you.
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