Up Over 50% in Just 1 Month, Is It Too Late to Buy Kohl's Stock?

Key Points

• Kohl's is a heavily shorted stock that has been volatile in recent years.

• It is trading well below its book value.

• The business, however, has been struggling to grow.

• 10 stocks we like better than Kohl's ›

Kohl's (NYSE: KSS) is one of the nation's top retailers, with locations across the country. It has been facing adversity of late as its financials haven't been looking great, but that hasn't stopped investors from taking a chance on this beaten-down stock.

It has soared 52% in just the past month (as of Monday's close). With earnings coming up in August, could now be a good time to load up on this retail stock before it reports its latest quarterly numbers, or is it already too late, and is a decline inevitable?

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Image source: Getty Images.

Kohl's is a heavily shorted stock

Although Kohl's stock has been doing well in the past month, not everyone is a believer in the business. Short interest is extremely high in the stock. And when that's the case, investors can expect to see a lot of volatility. Not only can short-sellers drive the price down, but a short squeeze can have the reverse effect.

KSS Percent of Float Short; data by YCharts.

The danger of such a high percentage of shares being shorted is that it can lead to significant swings in value in a short time frame. Currently, the stock is averaging a fairly high beta value of around 1.70. A stock that mirrors the market's movement is at a beta of around 1, and the higher it is, the more volatile the stock has been.

While this volatility can make Kohl's an exciting stock to own when it's rising quickly, it can also be a disastrous one when it's rapidly going in the other direction.

The company's fundamentals are seriously lacking

Some investors may believe there's good value with the business, and hence it's worth investing in. Kohl's has, after all, plummeted 38% in just the past 12 months. Even with the recent surge, its market cap is just $1.4 billion and its price-to-book multiple is less than 0.4. But based on analyst estimates, the stock is trading at a whopping 80 times its future earnings.

The company's growth improved during its most recent quarter (ending on May 3), which only highlights the retailer's struggles as its top line was still down 4%. But given how badly Kohl's has been doing, even that looked better than some of its previous results.

KSS Operating Revenue (Quarterly YoY Growth); data by YCharts; YoY = year over year.

Consumers have been cutting back on discretionary spending amid challenging economic conditions, which is why Kohl's may continue to struggle in growing its sales in future quarters.

Meanwhile, with the company's net income over the trailing 12 months totaling just $121 million on revenue of $16.1 billion, its profit margin has been incredibly thin -- less than 1%. Awful margins and a lack of top-line growth make this an incredibly risky stock to be holding right now.

Investors should think twice about buying Kohl's stock

It may be tempting to buy Kohl's stock as it rises quickly in value, but what goes up quickly can also come crashing down just as fast. The company isn't in good shape, and there are simply much safer and better stocks to buy than Kohl's right now.

This is a highly speculative and risky stock, and it's one that most investors may be better off avoiding for the time being due to its unpredictability. While Kohl's stock may still rise in value from where it is now, I think the rally will prove to be a short-lived one, as it often is with risky and speculative investments.

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.