If a stock is being targeted by short sellers, it can pay to approach the security with caution. Short sellers are generally high-conviction traders. If they’re betting against a stock, there’s usually a good reason they are doing so.
In this report, we are going to take a look at the short interest at Koss Corp (KOSS:US). Koss is a US company that specializes in the design and manufacture of headphones, headsets, and speakers. Its products, which are sold globally, are sold through national retailers, distributors, audio specialty stores, electronics retailers, and online. The company is listed on the NASDAQ Capital Market and currently has a market capitalization of $161 million.
Koss Corp: High Short Interest
Looking at the short selling data on Koss Corp, we can see that short interest is elevated at present. Currently, around 527,222 shares are on loan, which represents around 14% of the free float. This high level of short interest is a red flag, in our view, as it indicates that institutions are betting against the stock heavily.
The high level of short interest here isn’t the only red flag, however. What also stands out about Koss Corp is that the cost to borrow stock is very high at 60.266%. This tells us that demand for the stock from short sellers is very high at the moment – the higher the demand on the short side, the higher the cost to borrow stock.
Overall, Koss Corp has a Borrowing Activity Rating (BAR) of 10. The formula to calculate the BAR includes inputs from outstanding loan fees, new loan fees, new loan volume, and utilization rates. A rating of 10 indicates a high demand to short the stock.
Share Price Rise
Taking a closer look at Koss Corp, it’s not hard to see why short sellers are targeting the stock.
This year, Koss Corp has been caught up in the ‘meme stock’ craze and buying from retail investors has pushed its share price up to around $19, from around $3 at the start of 2021. This share price rise, and the company’s current market cap of approximately $160 million, is hard to justify when you consider the fundamentals.
For a start, Koss’ revenue has fallen significantly in recent years. For the 12 months to 30 June 2021, revenue came in at $19.55 million. That represents a 25% decline from the figure of $26.00 million posted for the year ended 30 June 2016.
Secondly, the stock’s valuation is very high. For the 12 months to 30 June 2021, Koss generated diluted earnings per share of just $0.05. That means the stock’s trailing price-to-earnings ratio stands at around 370.
Given the high level of short interest here, we think caution is warranted towards Koss Corp stock at the moment.