Koss Corporation (NASDAQ:KOSS), a USD$11.66M small-cap, operates in the consumer discretionary industry, whose performance is predominantly driven by consumer confidence, which is linked to employment and wage rates. Purchasing power is also a factor of interest rates and lending standards by financial institutions. These macro elements determine how fast, and how often, consumers buy big-ticket durable items. The sector is also undergoing significant structural shifts resulting from changes in consumer preference, as well as the continued rise in online competition. Consumer discretionary analysts are forecasting for the entire industry, a positive double-digit growth of 13 percent in the upcoming year, and a massive growth of 34 percent over the next couple of years. This rate is larger than the growth rate of the Australian stock market as a whole. Should your portfolio be overweight in the household durables sector at the moment? Below, I will examine the sector growth prospects, as well as evaluate whether KOSS is lagging or leading its competitors in the industry. Check out our latest analysis for Koss
What’s the catalyst for KOSS's sector growth?
E-commerce continues to be the fastest growing sales platform for consumer discretionary goods, changing the landscape for retailers. A large number of store closures and bankruptcies illustrates the shift in consumer preferences and increasing online competition. In the previous year, the industry endured negative growth of 0 percent, underperforming the Australian market growth of 6 percent. KOSS lags the pack with its negative growth rate of -177 percent over the past year, which indicates the company will be growing at a slower pace than its household durables peers. As the company trails the rest of the industry in terms of growth, KOSS may also be a cheaper stock relative to its peers.
Is KOSS and the sector relatively cheap?
Household durables companies are typically trading at a PE of 21 times, relatively similar to the rest of the Australian stock market PE of 22 times. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. However, the industry returned a higher 24 percent compared to the market’s 16 percent, potentially illustrative of past tailwinds. Since KOSS’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge KOSS’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? KOSS has been a household durables industry laggard in the past year. If your initial investment thesis is around the growth prospects of KOSS, there are other household durables companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how KOSS fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If KOSS has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although its growth has delivered lower growth relative to its household durables peers in the near term, the market may be pessimistic on the stock, leading to a potential undervaluation. Before you make a decision on the stock, I suggest you look at KOSS’s future cash flows in order to assess whether the stock is trading at a reasonable price.
For a deeper dive into Koss's stock, take a look at the company's latest free analysis report to find out more on its financial health and other fundamentals. Interested in other consumer discretionary stocks instead? Use our free playform to see my list of over 100 other consumer discretionary companies trading on the market.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.