1 Meme Stock to Avoid Like the Plague

Meme stocks have drawn considerable attention in investment circles. Instead of focusing on rising profits or attractive valuations, such stocks are often driven by hype coming from social media, online forums, or other areas. That has fostered considerable speculation and volatility.

Unfortunately, buying such stocks is the antithesis of long-term investing, and they can often wipe out investors once the hype disappears. Kohl's (NYSE: KSS) is likely one such stock to avoid. Here's why.

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Why Kohl's has appealed to meme investors recently

Admittedly, the idea of turning on Kohl's may seem strange amid the holiday season and recent earnings report. The stock surged almost 43% higher in a single trading session after releasing its earnings report for the third quarter of 2025. It has also risen further in subsequent trading sessions.

Investors responded well to the company dropping Michael Bender's "interim" title and making him the permanent CEO. Kohl's also delivered an improved outlook for 2025.

The company has struggled in recent years with a changing marketplace, more intense competition, and a high level of company debt.

However, Kohl's has allayed some of these concerns by refinancing debt at more favorable interest rates. What's more, efforts to cut costs, a partnership with Sephora, and efforts to appeal to younger customers seemed to have also gained some traction.

When investors combine such attributes with a price-to-earnings (P/E) ratio of just above 15, one might understand why it seems overdue for a stock rally.

Why is it a stock to avoid?

Nonetheless, despite these efforts, Kohl's still appears to lack a meaningful competitive moat, as everything it sells can be found elsewhere.

That issue is evident in its performance, as the "improvements" still amount to lower sales. Net sales fell by 4% in the first nine months of 2025 to $9.8 billion. Even with an improved outlook, the company predicted that the trend would continue into the next quarter.

Indeed, net income in the first nine months of 2025 improved from $61 million to $147 million. Still, there is a limit to how much cost-cutting can improve a company in the long term, and it will eventually have to increase sales to earn higher profits over time.

Avoid Kohl's stock

Despite the strong Q3 report and the recent rise in the stock price, Kohl's likely remains a stock to avoid.

Although profits are higher thanks to cost cuts, Kohl's has no obvious strategy for addressing the declining revenue. Plus, it operates in an intensely competitive market that would probably not miss its presence if it were to go out of business.

Investors may hang signs of hope on a new CEO and its new target marketing strategy for a time. But unless Kohl's can develop a competitive edge and reverse its sales declines, it's probably best to stay away from this stock.

Will Healy 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.