Last week, Koss Corp. (NASDAQ: KOSS) surged over 200% on abnormal volume and meme speculation. The stock traded over 100 million shares combined on Wednesday and Friday, compared to its average volume of just 1.9 million shares, highlighting its current high activity. But what caused this wild price action and volume?
Meme-Mania Fuels Koss Surge
Social media speculation around meme stock influencer Keith Gill has driven recent interest in Koss Corp. Followers of Gill, known as 'Roaring Kitty,' pointed to cryptic images he posted in May showing a microphone against a U.S. flag backdrop, which appeared at the end of a video as an emoji.
This led to Reddit speculation that 'Roaring Kitty' might buy Koss shares around July 4, Independence Day. The poster also highlighted similarities between Koss and GameStop. However, some Reddit users were skeptical, noting the image featured a microphone, not headphones.
Koss' dramatic price action includes an almost 140% jump during Wednesday's trading session and nearly 220% gains for the week, with the stock briefly rising as much as 70% in premarket trading on Friday. "There are absolutely no fundamental reasons why this company might be worth four times what it was at the beginning of the week," remarked Steve Sosnick, market strategist at Interactive Brokers.
Given this wild price action and renewed interest in the company, let's examine Koss more closely to see if there might be substance behind the move from a fundamental and technical perspective.
Koss Corporation Overview
Koss Corporation, a consumer discretionary stock, designs, manufactures and sells stereo headphones and related accessories in the United States and internationally. The company has a market capitalization of $123 million, and thanks to last week's surge, the stock is trading at the high end of its 52-week range.
From a fundamental perspective, there is no real substance behind the move. Koss last posted its earnings results on May 9, 2024, reporting ($0.03) earnings per share (EPS) for the quarter with revenue of $2.64 million. The company's revenue has steadily declined over the years, from almost $6 million in Q2 2021 to just $2.64 million in its latest quarterly report.
On a more positive note, the company has a modest Price-to-Book of just 3.97. According to its most recent earnings report, its cash reserves remained steady near $2.97 million, similar to the previous year's quarter. Koss also reduced its total liabilities from $7.28 million to $6.48 million in the same period.
KOSS Enters Overbought Territory
From a technical perspective, Koss appears extremely overbought and susceptible to a significant pullback. After last week's surge, the stock has an RSI of 90, indicating major overbought conditions. Similarly, the stock is highly extended from its SMAs, all trading near $4, while it is now almost 500% above its 52-week low.
Market Dynamics Impact Price Action
One significant factor behind the surge is the supply and demand of shares. With a small float of almost 5 million shares, the unusual volume and short interest led to an intraday short squeeze and a significant supply and demand imbalance. As of June 15, the stock had a short percent float of 7.74%, an 18.6% increase over the previous month.
While the recent surge in Koss Corp. is primarily driven by speculation and social media influence, the fundamental and technical analysis suggests caution. The stock appears overbought and overvalued, with no substantial change in the company's fundamentals to justify the rapid increase. Investors should be aware of the potential for significant volatility and the risk of a major correction.
