Koss Corporation (NASDAQ:KOSS), a USD$12.40M small-cap, operates in the consumer discretionary industry, whose sales are driven primarily by consumer sentiment and access to capital. These macro factors tend to determine the rate at which consumers purchase big-ticket durable items. Consumer discretionary analysts are forecasting for the entire industry, a positive double-digit growth of 18.56% in the upcoming year , and a massive growth of 46.06% over the next couple of years. This rate is larger than the growth rate of the US stock market as a whole. Below, I will examine the sector growth prospects, and also determine whether KOSS is a laggard or leader relative to its consumer discretionary sector peers. 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. Over the past year, the industry saw growth of 9.92%, though still underperforming the wider US stock market. KOSS lags the pack with its earnings falling by more than half 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 17x, in-line with the US stock market PE of 22x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. Furthermore, the industry returned a similar 10.88% on equities compared to the market’s 10.06%. 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.