GameStop (GME -5.53%) mania has taken over the country.
In a script straight out of Hollywood, a group of investors on the Reddit board WallStreetBets pumped up the stock over the last couple weeks, squeezing short-selling hedge funds to send it up as much as 2,500% in less than a month.
But while the video game retailer has gotten much of the attention in the press during the Reddit squeeze that's hit several consumer stocks, it actually wasn't the biggest winner of the group last tweek. That title belongs to Koss Corporation (KOSS -3.41%), an under-the-radar maker of headphones and other audio equipment. Shares of Koss jumped more than 1,800% in last week alone, compared to a gain of 400% for GameStop, and at its peak last week, Koss shares had gained a whopping 3,715%. In other words, $1,000 in Koss shares turned into $38,150 in just four days.
After that incredible run, is Koss still a buy? Let's take a closer look at what the headphone-maker has to offer.
What is Koss?
Founded in 1958, Koss makes a range of headphones and audio devices like speakers and headsets. The stock has languished in the micro-cap range for much of its history, trading at a valuation of less than $300 million going back to the 1980's.
Koss's annual revenue peaked shortly before the financial crisis at around $50 million and has fallen steadily over the last decade, now sitting at $19 million over the last four quarters. The company's most recent earnings report, which came out last Thursday, showed some signs of a potential turnaround as revenue jumped 18%, though that seemed to be result of the pandemic as CEO Michael Koss noted "sales driven by the continuation of people studying and working from home."
Additionally, Koss is only borderline profitable as operating income has hovered around break-even for the last five years and in the most recent quarter it only brought in $2.1 million in operating income.
What seemed to spark Koss's sudden rise was the combination of an elevated short interest and a low share price, attracting investors looking for a stock with similar attributes to GameStop. Earlier in January, the short interest was at 33%, but since it surged nearly all of those short were closed out, eliminating the prospects of another short squeeze.
Is Koss a buy?
Koss went from a $20 million little-known company at the beginning of 2021 to a darling of Reddit's WallStreetBets board, which briefly lifted its valuation to $1 billion. With little change in its fundamentals, however, this move resembles more of a penny-stock, pump-and-dump run than even a short squeeze as the shorts seem to have folded rather quickly. Since it traded at just under $5/share a few weeks ago and was valued at around $20 million, Koss met of the definition of a penny stock . And with little fundamental reason for the stock to justify even its current valuation, especially as it operates in highly competitive industry and is up against competitors like Apple, Koss seems likely to return to penny stock range over the long term.
Anything can happen in the short term as the last week showed us, and Reddit investors may try to boost Koss again. However, the logic of another surge is faulty without the short sellers, and the market is well-aware of the game being played -- and savvy investors will look to pocket their gains. In other words, it's a smart move to skip Koss and the volatility around it, and find a quality investment you can count on for the long term. Just like investors are better off avoiding the GameStop frenzy, Koss is a stock best left alone.