With EPS Growth And More, Koss (NASDAQ:KOSS) Makes An Interesting Case

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

In contrast to all that, many investors prefer to focus on companies like Koss (NASDAQ:KOSS), which has not only revenues, but also profits. While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

See our latest analysis for Koss

Koss' Earnings Per Share Are Growing

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. Koss' shareholders have have plenty to be happy about as their annual EPS growth for the last 3 years was 50%. That sort of growth rarely ever lasts long, but it is well worth paying attention to when it happens.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. Koss' EBIT margins have actually improved by 7.1 percentage points in the last year, to reach 5.1%, but, on the flip side, revenue was down 9.9%. While not disastrous, these figures could be better.

The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.

Since Koss is no giant, with a market capitalisation of US$63m, you should definitely check its cash and debt before getting too excited about its prospects.

Are Koss Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

Koss top brass are certainly in sync, not having sold any shares, over the last year. But more importantly, Independent Director William Sweasy spent US$140k acquiring shares, doing so at an average price of US$7.01. Purchases like this clue us in to the to the faith management has in the business' future.

It's commendable to see that insiders have been buying shares in Koss, but there is more evidence of shareholder friendly management. Namely, Koss has a very reasonable level of CEO pay. For companies with market capitalisations under US$200m, like Koss, the median CEO pay is around US$768k.

Koss' CEO took home a total compensation package worth US$417k in the year leading up to June 2022. That is actually below the median for CEO's of similarly sized companies. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of a culture of integrity, in a broader sense.

Does Koss Deserve A Spot On Your Watchlist?

Koss' earnings per share have been soaring, with growth rates sky high. Better yet, we can observe insider buying and the chief executive pay looks reasonable. The strong EPS growth suggests Koss may be at an inflection point. If so, then its potential for further gains probably merit a spot on your watchlist. You still need to take note of risks, for example - Koss has 3 warning signs (and 1 which shouldn't be ignored) we think you should know about.

The good news is that Koss is not the only growth stock with insider buying. Here's a list of them... with insider buying in the last three months!

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.