Should you buy Kohl’s stock after Q1 report disappoints investors?

Shares of US department store chain Kohl’s Corporation (NYSE:KSS) on Thursday fell by more than 10% in reaction to first quarter results that failed to reassure investors demand can be sustained. Investors were not particularly interested in management’s encouraging outlook, including improved guidance for the full year 2021 and a reiteration of its 2023 strategic goals. 

Is Kohl’s growth priced in?

Kohl’s said that it expects better results at the end of the year. Under normal circumstances, this should have propelled the stock higher given that it already outperformed expectations in the first quarter. However, shares of the company sank by 10%. This suggests one (or more) of the following three outcomes: 1) KSS current valuation already reflects the expected growth, 2) investors were hoping for an even better outlook, or 3) investors have minimal faith in management’s ability to deliver on its goals.

Are you looking for fast-news, hot-tips and market analysis?

Sign-up for the Invezz newsletter, today.

Kohl’s net sales increased by 69.5% year-over-year to $3.89 billion in the first quarter. Adjusted diluted earnings per share came in at $1.05 compared to a loss per share of $3.22 in the same period last year. The company has several catalysts ahead to support continued growth, including investing in its own margin-rich private-label brands and expanding its “store in a store” initiative with beauty giant Sephora. 

Kohl’s CEO Michelle Gass noted:

“We saw momentum build through the quarter, especially in our stores where we continue to elevate the experience. We are eagerly preparing for the upcoming launch of our Sephora partnership as well as the introduction of several new exciting brands this fall.”

Technical overview of Kohl’s stock

Shares of KSS traded near a three-month low on Thursday near the $52 level and recovered some of its losses to jump above $54 per share. The stock is still far removed from its 52-week high of $64.80. 

Can shares of Kohl’s regain more of its losses? Thursday’s slight recovery from its lows is encouraging and shows the stock may have found a bottom. But investors shouldn’t expect the stock to retest its highs as Kohl’s is now categorized as a “show-me story”. This means that long-term investors should hold off on buying the stock until there are clear signs of sustainable growth heading into 2022 and beyond. 

Nevertheless, near-term trends are more favorable and swing traders and short-term investors can look to buy at current levels. The KSS chart suggests near-term short-term profit taking opportunities at the resistance levels at $56.07, $58.09, or higher at $60.11. 

Key support levels can be found at $52.53 and $50.72.

Bottom line: Kohl’s is a good short-term buy

In summary, shares of Kohl’s are compelling to short-term buyers. The company expects to return to profitability on a trailing 12-month basis by the end of this year after turning a profit in its first quarter but investor enthusiasm after the Q1 report is just not there.

While most of the company’s long-term growth prospects may be priced in, a short-term rebound cannot be ruled out. Therefore, the short-term price targets are realistic and investors should target KSS for a short-term trade.