Name an American company that is a headphone innovator and whose phenomenal stock growth has been making headlines. I bet Apple (NASDAQ:AAPL) is probably at the top of your list. However, in 2021, Koss Corporation (NASDAQ:KOSS) has been bigger news than Apple. At least so far.
Thanks to the infamous traders of Reddit, Koss stock suddenly surged in value at the end of January. Shares gained over 1,800% in a single week before inevitably beginning to slide.
Now trading near $13, Koss stock is still up over 300% so far in 2021. Don’t expect this valuation to last. Koss may have been a headphone innovator — in 1958 — but the company is doing nothing these days that would justify that dramatic increase. With KOSS shares trading in the $2 range for the past five years (and briefly dropping below a dollar in 2020), the real winners in this drama have been Koss family members and company executives who took advantage of the unexpected spike to sell shares.
Koss Versus Apple
Before digging into what’s going on, let’s have a quick look at Koss. The Milwaukee-based company has been in business since 1953, and its big claim to fame is inventing the world’s first stereo headphones. That was a considerable achievement. It was also in 1958.
The company’s primary focus remains headphones and earbuds. It’s also expanded into portable Bluetooth speakers, and a line of CDs with American orchestras playing classical music. Koss sells some of its headphones to schools and prisons through distributors, but consumer is its biggest market.
Koss products are inexpensive and typically found through online retailers, in discount stores, and in grocery stores. This is not an aspirational brand. Koss earbuds are the kind of impulse buy you might pick up at a gas station because you’re on a road trip and one of the kids forgot theirs at home.
Apple, on the other hand, dominates the world headphone sales. Apple owns the Beats brand. White earbuds were everywhere after being included for free with every iPhone sold. But its breakout hit has been the AirPods wireless earbuds. Worldwide, there were over 300 million Bluetooth wireless headphones shipped in 2020. Apple’s AirPods alone held a nearly 50% share of that market.
Apple recently released its first Apple-branded, wireless over-ear headphones, the AirPods Max. They go for $549. Koss also recently released new wireless over-ear headphones. The Koss KPH7s sell for a retail price of $29.99.
There are hundreds of headphone vendors competing in a market that is now dominated by Apple. Koss helped to kick this off by inventing the first headphones in 1958, but the company is no longer a player.
Koss Stock Feels the Reddit Effect
On Jan. 28, Koss released its second-quarter results. Sales of $4.93 million were up 18.4% year-over-year. Net income was $509,000 compared to a net loss of $216,000 the year before — although the quarter was helped significantly by a $506,700 Paycheck Protection Program (PPP) loan that was forgiven.
Several days before the earnings report, Koss stock suddenly began to surge. The day after that earnings report it peaked, with KOSS closing at $64 on Jan. 29 after hitting over $127 at one point in the day. Shares had been trading just over $3 prior to this surge.
The catalyst wasn’t Koss’s decent quarter. It was retail traders using Reddit banding together to drive Koss shares up. The drop was just as fast. After reaching that peak close — which was nearly five times its all-time high close from 2006 — Koss stock plummeted, losing 68% of its value in just two sessions.
The real winners from the Reddit-fueled surge appear to be members of the Koss family and company executives. According to Business Insider, Koss family members acted quickly, selling $31 million worth of Koss stock. Company executives and directors sold an additional $13 million in shares. Those sellers received between $19 and $60 per share.
It’s possible that with all the publicity, Koss may even sell some more headphones this quarter. It would have to move a whole lot to come anywhere near justifying its current valuation.
Bottom Line on Koss Stock
There is nothing wrong with Koss Corporation. The company has been in business for decades, and there’s still a market for its affordable audio products. However KOSS is no longer an innovator in the space. It’s not Apple, dominating the wireless headphone market. It’s not an aspirational brand. The company now produces commodity products. KOSS is not a growth stock. It doesn’t pay dividends, either — at least not since 2014. Yes, the company reported a decent quarter at the end of January, but the surge in Koss stock was all about the Reddit factor.
Less than three weeks after peaking, KOSS has already given back most of those gains. Expect the slide to continue.
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.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation.