The insanity behind the recent move in headphone and accessories maker Koss Corporation (KOSS) - Get Koss Corporation Report has been a gift to the many insiders at the company, but it's been a huge risk for the average person.
In late January, the once heavily-shorted stock skyrocketed from $3.35 to $127.45 in just five days. Why? Because it didn't have many shares available to trade. You see, the number of shares available to trade in Koss during that period was only 1.58 million shares. That's not a huge supply, and once the WallStreetBets crew set their sights on Koss, demand overwhelmed supply. Shares illogically skyrocketed higher for a company with no growth, running at breakeven for years now.
The insiders at Koss took advantage of this move. The company was valued at roughly $25 million back on Jan. 22 before insiders dumped nearly 1.4 million shares onto the market, raking in over $52 million for themselves. And if insiders are selling, why would you be buying? Meanwhile, Koss remains valued at roughly $140 million, despite the company showing zero growth and no benefit from work-at-home or the rise in streaming/gaming.
Rather than overpaying for a go-nowhere headphone maker that's had years to prove itself, consider some alternatives:
Corsair Gaming (CRSR) - Get Corsair Gaming, Inc. Report. Although the gaming and streaming peripherals company is new to the market, it's not a new company. What is new about it is how it has taken off over the past five years thanks to the rise in eSports. With the impact of COVID, we find a company that has been around since the 90s, but has sold half of the hardware and peripherals it’s sold in its entire history in just the past five years. This is an industry approaching $50 billion and that number may be conservative as the total addressable market continues to grow almost daily as new gamers and replacement cycles continue.
Corsair's move into the console accessory market should help numbers over the next year during the new Microsoft (MSFT) - Get Microsoft Corporation Report Xbox (series X and S) and Sony (SNE) - Get Sony Corp. Report PlayStation 5 upgrade cycles. Additionally, they've acquired a software ecosystem to improve the performance and adaptability of their hardware for gamers. Having both a software and hardware component to the business, plus multiple growth drivers, creates a strong pull for investors seeking diversification in the space.
Turtle Beach Corp. (HEAR) - Get Turtle Beach Corporation Report. If you're going to own a name in the consumer space that will benefit from demand for headphones/headsets, then go with one that has seen revenue skyrocket to $330 million in 2020 from $235 million in 2019. And rather than a company fighting to break even year in and year out, you get one that is looking at $1.80 earnings per share for FY2020.
Last quarter, revenue for HEAR grew 141% as consumer demand far exceeded expectations. Management noted the company is benefitting from new gamers, existing gamers and lapsed gamers rejoining the market, as well as non-gamers buying headsets for work-at-home and at-home schooling. These are all things KOSS pumpers will say are potential benefits for KOSS, but they are benefits HEAR has actually been experiencing for a year now. And this is another name that will benefit from the new Xbox and PlayStation Consoles.
HEAR does compete with Corsair in the accessories market, with HEAR owning the headset market and Corsair leading the way in keyboards, streaming gear, computer cases, cooling systems and power supply units. Both do well with mice sales.
Sonos (SONO) - Get Sonos, Inc. Report. Staying with the idea of consumer electronics and audio, an investor could turn to Sonos, the maker of multi-room speakers and soundbars. This is another profitable consumer electronics name that has been killing it. Last quarter, the company earned $0.33 per share on $339.8 million in revenue, while Wall Street anticipated earnings of $0.15 per share on $298.77 million. For the full year, Sonos expects revenue of $1.44 to $1.5 billion.
The 11% to 15% sales growth rate isn't quite as sexy as HEAR or CRSR, but the bottom line numbers have been growing at a significantly higher rate, so more of the top line growth is going straight to the bottom line. With earnings set for Feb. 10th, the best play here is likely to wait and see what the earnings bring. If there is a sell-off into the $22.50 to $26 range, then SONO could be a great dip buying opportunity.
Vuzix Corp (VUZI) - Get Vuzix Corporation Report. For those that want a smaller, more aggressive name, then going outside the box with a company designing and manufacturing augmented reality (AR) wearable devices might be the way to go. While VUZI essentially has no debt, it is still struggling to achieve profitability. Revenue is heading the right direction; however, realized revenue sits under $10 million.
The company is growing its smart glasses business, so it is not unrealistic to anticipate year-over-year sales growth to range from 50% to 150% each quarter for the next few years as adoption increases, specifically in the healthcare, manufacturing, and field services sectors.
The company recently filed a $300 million shelf offering. I would look to buy that offering or any dip related to it. I imagine we'll see it soon, and that will be the opportunity to enter the stock in the $9 to $11 range. It's worth adding this is a name with a very high short float of close to 19%.
GoPro (GPRO) - Get GoPro, Inc. Class A Report. The recent post-earnings dip from the developer of cameras, drones and wearable accessories, may be a gift for longer-term investors. The company is in the midst of a strategic business shift. With a strong direct-to-consumer model along with a blossoming subscription model, GoPro has significantly increased its positive cash flow. The number of subscribers grew 145% year-over-year to 761,000, while cash flow from operations topped $100 million.
Make no mistake, this is a turnaround story, but if GPRO can maintain its strong subscriber growth and positive operating cash flow, those holding the roughly 13% short float may regret betting against a name that could become very profitable in 2021.
There's a little bit of something for everyone here, but I would look to mix CRSR and HEAR positions with one of the other three to create a more diverse way to play the upside in consumer electronics.
Tim Collins is a regular contributor to Real Money, TheStreet’s premium site and provides options trade ideas each day on Real Money Pro, our sister site for active traders. Click here to learn more and get great columns, commentary and trade ideas from Jim Cramer, Helene Meisler, Mark Sebastian, Paul Price, Doug Kass, and others.
At the time of publication, Tim had no positions in any of the stocks mentioned in this article.