With a sudden -7.7% drop to $31.32, Kohls has Wall Street wondering if its shares will keep moving past its target price of $31.45. With an average rating of hold, and analysts assigning target prices from 19 to 44 dollars per share, investors will be betting heavily on the Department Store stock's next move.
To understand the market's outlook on the stock, we can look at Kohls's short interest: the proportion of the share float that is tied to short positions. Behind each short position is an investor who believes that the stock will decline in the future. Here, the stock's short interest is 12.3% which means the outlook is split between bearish and bullish sentiment.
Short selling involves borrowing shares and then selling them at current market prices. In the successful version of the strategy, the shares are purchased at a lower price at some time in the future. The investor then returns the shares to the lender, and keeps the profit made on the sell/buy transaction.
One way to get an idea of the market sentiment on a stock is to check its rate of institutional ownership. In the case of Kohls, institutional investors own 95.6% of the shares, which indicates they have a very high stake in the company. What does this really tell us?
Institutional investors such as hedge funds, investment firms, and wealth managers devote significant resources to identifying good investments. If they have decided to invest in KSS, it probably means they believe it is a solid investment choice.
But it could also mean they are buying up shares in an effort to acquire the company or to get seats on the board of directors. Also bear in mind that institutions are fallible (just maybe not quite as fallible as the average retail investor), so they may simply be wrong when they think they've found a good stock.
Analyst coverage, short ratio, and institutional ownership say a lot about how the market views a stock. But markets can be wrong. At Market Inference, we believe that any investment decision should be preceded by an in-depth analysis of the company's fundamental values and competitive advantages.
Here's a snapshot of some important facts to keep in mind about KSS:
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The stock has trailing 12 month price to earnings (Eps) of $6.34 per share
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Kohls has a trailing 12 month Price to Earnings (P/E) ratio of 4.9 compared to the S&P 500 average of 15.97
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The company has a Price to Book (P/B) ratio of 0.9 in contrast to the S&P 500's average ratio of 2.95
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Kohls is a Consumer Cyclical company, and the sector average P/E and P/B ratios are 24.27 and 3.23 respectively
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At 41%, Kohl's gross profit margins are average for a retailer, and do not indicate a particular competitive advantage
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