The economic crisis brought on by the novel coronavirus made it difficult for retailers like Kohl’s (NYSE:KSS) to turn a profit. This challenge is clearly reflected in the Kohl’s stock price, which is down almost 60% for the year.
Critics of Kohl’s will likely point out that the company’s problems actually began prior to the onset of the pandemic. They’d be correct, because the so-called “retail-pocalypse” has been in effect for years, as brick-and-mortar stores are displaced by online shopping and delivery.
Coupled with the pandemic, the demise of the store front practically decimated traditional retailers this year. But should investors lump Kohl’s in with all other old-school retail chains? That would be a mistake as Kohl’s has advantages that its peers may not.
A Closer Look at Kohl’s Stock
Over the years, Kohl’s stock has attempted to cross and hold the $75 resistance level numerous times. Long-term shareholders are probably sick and tired of watching the stock hit this price point and fail time after time. (To refresh your memory, that last occurred in early November 2018.)
Yet, at least investors could expect Kohl’s stock to hold the $32 area as the sellers couldn’t push it below that level. Or at least that was true until this year, when the coronavirus crisis caused a gut-wrenching crash to the $11.50 region.
Fortunately for the bulls, Kohl’s shares have drifted back up to $22. Their next objectives should be $30 and $40. Those are reasonable goals since Kohl’s stock was trading above $40 prior to the pandemic. The bad news is that the stock offers no dividend, so the price action is of paramount importance.
Don’t Forget the Amazon Connection
At the time, this was considered a game changer in the retail space. Kohl’s CEO Michelle Gass was thrilled, and for good reason:
“Our top strategic priority is driving traffic, and this transformational program does just that. It drives customers into our stores, and we are expecting millions to benefit from this service.”
If Amazon is the leviathan that caused the retail-pocalypse in the first place, then aligning with Amazon is a much smarter move than trying to fight against it.
Having an Amazon connection sets Kohl’s apart from brick-and-mortar competitors without detracting from the unique Kohl’s brand. Trader’s might consider it last year’s news — and, technically, it is — but the Amazon-Kohl’s partnership is no less relevant in 2020.
Seeing the Difference
It won’t happen overnight, so don’t expect the trading community to reward Kohl’s competitive advantages anytime soon. For the time being, the outlook on KSS stock should be strictly bearish.
Eventually, though, there should be a light at the end of the tunnel as investors start to perceive the difference between Kohl’s and its peers. As Bank of America Merrill Lynch analyst Lorraine Hutchinson put it, eventually “investors will begin to differentiate between business models.”
We already cited the Amazon connection, but there’s more to it than that. Approximately 95% of Kohl’s stores aren’t located in malls. That’s an advantage because the coronavirus has made shoppers hesitant to go to crowded malls.
Plus, Kohl’s online sales have remained surprisingly robust. In fact, the company’s online sales nearly doubled in the month of May.
But the good news isn’t restricted to Kohl’s online segment as 90% of the company’s stores were open in June. That’s encouraging for long-term investors, though it will probably take the market a while to appreciate and fully price in Kohl’s impressive recovery.
The Bottom Line
If you’re in the market for a short-term trade, Kohl’s stock isn’t your best bet and should be avoided. For investors with a long-term timetable, however, the stock is a firm buy-and-hold as Kohl’s stands out from its peers in multiple ways.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities. David has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.