Stereo headphones and related accessories seller Koss Corporation (KOSS - Get Rating) offers high-fidelity headphones, wireless Bluetooth headphones, computer headsets, telecommunications headsets, and noise-canceling headphones. The company also offers compact disc recordings under its Koss Classic label. KOSS sells its products through distributors, audio specialty stores, the internet, and electronics retailers.

KOSS’ shares gained substantially late last month as meme stocks staged somewhat of a comeback after GameStop Corporation (GME) Chairman Ryan Cohen purchased 100,000 shares of the company. Notable meme stocks, which were part of the meme-stock boom last year, gained on the news, KOSS being among them.

KOSS’ stock has declined 64.5% over the past year and 23.4% year-to-date. However, it has gained 15.9% over the past month to close yesterday’s trading session at $8.18.

Here is what could shape KOSS’ performance in the near term.

Declining Financials

For the fiscal second quarter ended December 31, KOSS’ net sales decreased 10.4% year-over-year to $4.42 million. Gross profit declined 4.2% from the prior-year quarter to $1.55 million. The income per common share came in at $0.06, down 14.3% from the same period last year.

Stretched Valuations

In terms of its trailing 12-month P/E, KOSS is currently trading at 294.95x, 2,081.5% higher than the industry average of 13.52x. The stock’s trailing 12-month EV/Sales multiple of 3.93 is trading 210.2% higher than the industry average of 1.27. Its trailing 12-month Price/Sales is trading at 4.06x, 313.3% higher than the industry average of 0.98x, while its trailing 12-month Price/Book multiple of 3.59 is trading 52.8% higher than the industry average of 2.35.

Profit Margins Look Bleak

KOSS’ trailing 12-month EBIT margin, EBITDA margin, and levered FCF margin of a negative 2.21%, 0.50%, and 17.41% are significantly lower than the industry averages of 9.30%, 12.69%, and 4.70%. Its trailing 12-month net income margin of 1.85% is 71.69% lower than the industry average of 6.55%.

KOSS’ trailing 12-month ROE and ROA of 1.78% and 1.18% are 89.65% and 80.66% lower than their respective industry averages of 17.20% and 6.11%. Its trailing 12-month ROTC of a negative 1.18% is significantly lower than the industry average of 7.87%.

POWR Ratings Reflect Bleak Prospects

KOSS’ POWR Ratings reflect this bleak outlook. The stock has an overall rating of D, equating to Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

KOSS has a Value grade of D, in sync with its stretched valuations.

The stock has a D grade for Stability. Its five-year monthly beta of a negative 1.89 justifies this grade.

In the 61-stock Consumer Goods industry, it is ranked #49. The industry is rated D.

Click here to see the additional POWR Ratings for KOSS (Growth, Momentum, Sentiment, and Quality).

View all the top stocks in the Consumer Goods industry here.

Bottom Line

KOSS has been gaining in price lately amid renewed meme stock hype. However, its lack of solid fundamentals makes it uncertain whether the stock will be to sustain its momentum. Moreover, its stretched valuations and lean profit margins are concerning. Hence, the stock might be best avoided.

How Does Koss Corporation (KOSS) Stack Up Against its Peers?

While KOSS has an overall POWR Rating of D, one might consider looking at its industry peers, Mannatech, Incorporated (MTEX - Get Rating) and Société BIC SA (BICEY - Get Rating), which have an overall A (Strong Buy) rating, and ACCO Brands Corporation (ACCO - Get Rating) and Ennis, Inc. (EBF - Get Rating), which have an overall B (Buy) rating.

KOSS shares were trading at $7.93 per share on Wednesday afternoon, down $0.25 (-3.06%). Year-to-date, KOSS has declined -25.75%, versus a -5.71% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...

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