Koss Corporation (KOSS), a stock listed on the NASDAQ 100, is rising this Tuesday despite the fact that the company made no announcements and its fundamentals are not solid, so the obvious question is what is the reason for this meteoric rise.
Koss Corporation is one of the standout companies in the meme stock craze of 2021 and revived that fever. This follows the return of Roaring Kitty, who helped fuel the rise of GameStop (NYSE: GME) and other meme stocks in 2021.
KOSS shares climbed 200% on Wednesday to a high of $15.67 from $4.91 which was quoted at the opening of the market. Although the sharp rise has been waning, the stock has almost quadrupled its initial value for this session.
The company, which produces headphones, has not made any announcements supporting the increaseIts last press release was published on May 9, while its last filing with the Securities and Exchange Commission (SEC) was submitted on May 31.
Could a short squeeze be happening here?
Possibly. Koss’ short interest as a percentage of float reached 7.7% as of June 15, equivalent to 404,000 shares sold short. Generally, a short interest of 10% is considered high, while a short interest of 20% or more is considered very high.
Koss’s fundamentals are not excellent
As for the company itself, the numbers are not very attractive. For the three months ended March 31, Koss’ revenue fell 22% to $2.63 million.The company was also unprofitable, with a net loss of $313,870 compared with a loss of $224,480 a year earlier.
“A nearly 30% drop in sales in the direct-to-consumer (DTC) space, which appears to be the result of a slowdown in consumer spending amid high inflation, energy and borrowing costs, drove the overall decline in sales during the first nine months of the fiscal year,” said Chairman and CEO Michael J. Koss.
Additionally, Koss competes in a highly saturated market with well-capitalized competitors such as Bose, Sony (NYSE: SONY) and JBL.
Buyers appear to have rushed in, pushing the price up and prompting investors who shorted the stock (betting it would go down) to buy shares to close out their trade.
It is part of what is known as “short squeeze“. The move can cause a stock to rise rapidly without an underlying change in the company’s fundamentals. Those who have shorted the stock are forced to buy shares to cover their position and prevent even greater losses, but their action triggers even more buying.
The result is a sharp rise in the stock price and huge losses for short sellers. The meme stock craze of 2021, fueled by a Reddit user named Roaring Kitty, saw Koss stock soar 1,000% in January 2021 before sliding back down over the following year.
Roaring Kitty quietly disappeared, and GameStop and other companies involved also went back down along with Koss. But Roaring Kitty reappeared in May, and with it Koss was up more than 40% on May 14. At the time of this story’s publication, it is up more than 100% on Wednesday and 270% since May 1.
Source: Ambito
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