Why Kohl's Stock Was Skyrocketing Today

Key Points

• Kohl's became the latest meme stock, skyrocketing this morning.

• Trading volume had nearly eclipsed shares outstanding by 10:30 a.m. ET.

• The business is still struggling.

• 10 stocks we like better than Kohl's ›

Shares of Kohl's (NYSE: KSS) were soaring today after the ailing department store chain became the latest stock to get the meme treatment, following in the footsteps of Opendoor Technologies' meteoric rise in recent weeks.

There was no company-specific news out on the stock. The only market-moving catalyst was a price target hike from Goldman Sachs from $5 to $7, though the investment bank still kept a sell rating on Kohl's.

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As of 10:18 a.m. ET, the stock was up 28.9% on extraordinarily high volume. Earlier in the session, the stock had jumped as much as 105% as it surged in pre-market trading shortly before the market opened. Trading in the stock was halted due to a volatility trigger.

Image source: Getty Images.

Kohl's gets the meme treatment

Meme stocks, which came into vogue in 2021 when stocks like GameStop and AMC Entertainment soared, seem to be having another moment after Opendoor's surge in recent days and now this.

Kohl's fits in with the kind of stock meme traders look for -- it's a small, consumer-facing stock with a familiar brand and high short interest. As of mid-June, 63% of the float was sold short, setting up what was a likely short squeeze. One argument circulating online is that bondholders had shorted the stock to hedge their risk of it going bankrupt. Some also see it as an asset play due to its real estate holdings.

Before 10:30 a.m. ET, nearly the entire float of Kohl's had been traded -- 104 million shares out of 112 million shares outstanding.

What's next for Kohl's

The 2021 rallies in GameStop and AMC eventually led those stocks to collapse, and the experience this time around for Kohl's and Opendoor is likely to be similar.

Kohl's challenges are real. The retailer reported a net sales decline of 4.1% in the first quarter, and it expects comparable sales of 4%-6% for the year, though it sees a modest profit.

Kohl's current ratio is just 1.1, indicating the company may have trouble paying its bills in the future, especially if its cash flow is negative.

As for the real estate, even if it does have purported value, unlocking it may be more difficult than it seems, as a similar bull case with Macy's didn't materialize.

Investors should expect the volatility in Kohl's to continue. However, today's gain shouldn't be mistaken for any improvement in the business.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group. The Motley Fool has a disclosure policy.