A common sight these days is to observe a sea of pedestrians walking, sometimes seemingly talking to themselves, with small, white devices couched in their ears. Large ear muffed headphones are also a common sight. The wireless audio device is alive and well.
While Apple continues to dominate the more premium end of the market, a slew of lower-priced competitors have emerged, battling it out on price and sound quality. And importantly, the almost new necessity of having these devices would appear to belie any possible future pressures on consumer spending.
Here we highlight 2 micro-caps competing in this space. AXIL Brands, Inc. (AXIL) designs, manufactures, markets, and distributes hearing enhancement and protection products (94% of sales) alongside professional-grade hair and skin care lines (6% of sales).
Axil Brands’ (AXIL) hearing product line encompasses 25 core offerings across 46 SKU’s and serve multiple use cases including tactical, sporting, and professional use. We recently upgraded the stock to OUTPERFORM due to execution of a business model change to more wholesale, whereby the company sacrifices some Gross Margin for more robust sales while keeping operating expenses in check.
Importantly, the company recently initiated a relationship with Costco which we believe could be a compelling catalyst going forward for topline growth. In the quarter ending 8/31/25 sales grew 17.2% to $6.9 m while adj. EBITDA grew 291% YOY to $.7 m.
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The other micro-cap, Koss Corporation (KOSS), is more focused on stereo headphones and interestingly, unlike AXIL, is moving more toward DTC (Direct to Consumer) to boost Gross Margin.
Approximately 84% of sales were derived from stereo headphones used for music listening, while the remaining 16% came from headphones utilized in communications, education settings, and sales to original equipment manufacturers (OEMs).
Koss Corporation (KOSS) demonstrated operational execution in FY Q1 (Sept) with sales increasing 27.1% to $4.1 m, Gross Margin improving 340 bps to 40%, and positive EPS of $.03 vs. a loss of ($.05) in the prior year.
Despite this improvement we remain on the sidelines with an UNDERPERFORM rating. Sales for the quarter were boosted by a one-time order in the Education vertical which most likely won’t repeat. Additionally, the company reports some softness in the European market which may be a continual drag.
Most importantly, as the company sources primarily from China and Taiwan, the company continues to face acute tariff risk which may materially impair Gross Margin, outweighing the gains from the DTC transition. We would need more clarity on this issue before considering an upgrade.
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Koss Corporation (KOSS): Free Stock Analysis Report
AXIL Brands, Inc. (AXIL): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).