Why Meme Stocks Like Kohl's (KSS) Pose Long-Term Risks for Rational Investors

The resurgence of meme stock fervor in 2025 has once again thrust Kohl's Corporation (KSS) into the spotlight, this time as a speculative darling rather than a struggling retail giant. While social media-driven rallies have briefly inflated its stock price, a closer examination of the company's fundamentals reveals a stark disconnect between its market valuation and underlying business performance. For rational investors focused on long-term capital preservation, KSS exemplifies the dangers of conflating short-term hype with sustainable value creation.

Weak Revenue Trends Signal Structural Challenges

Kohl's has experienced a relentless decline in revenue over the past three years, underscoring deep-seated challenges in its core business. For fiscal 2024, the company reported $16.22 billion in revenue, a 7.2% drop from $17.476 billion in 2023. This downward trajectory continued into 2025, with first-quarter revenue falling 4.41% year-over-year to $3.233 billion according to Macrotrends. Even more troubling is the third-quarter 2025 performance, where net sales of $3.4 billion included a 1.7% decline in comparable sales-a key metric for assessing retail health. These figures suggest that Kohl's is losing relevance in a competitive retail landscape, where shifting consumer preferences and e-commerce dominance have eroded traditional brick-and-mortar advantages.

Limited Sustainable Competitive Advantages

Despite efforts to innovate, Kohl's lacks durable competitive advantages that could justify long-term investment. While strategic partnerships like its collaboration with Sephora have driven a 13% increase in beauty category sales in Q4 2025, such initiatives are incremental rather than transformative. The company's cost discipline, which helped expand gross margins by 28 basis points in Q2 2025, is commendable but insufficient to offset broader operational weaknesses. High selling, general, and administrative (SG&A) expenses continue to pressure operating margins, and its reliance on loyalty programs like Kohl's Cash® and Rewards®-while effective for short-term retention-does little to address declining foot traffic or customer engagement.

Moreover, sustainability initiatives, though aligned with modern consumer values, remain peripheral to Kohl's core struggles. As noted in a 2025 SWOT analysis, these efforts "potentially offer another competitive edge" but fail to counteract the structural decline in revenue. In a sector where differentiation is critical, Kohl's appears to lack a clear, defensible moat.

Social Media Momentum Masks Fundamental Weakness

The recent 33% surge in KSS's stock price in late July 2025 was fueled by social media speculation, not improved fundamentals according to Bloomberg. Discussions on platforms like Reddit and X highlighted the stock's heavy short interest-28.69% of its float-as a catalyst for a potential short squeeze as reported by Money Morning. This pattern mirrors the 2021 meme stock frenzy, where retail investors drove up prices of fundamentally weak companies through coordinated trading. While such momentum can create short-term gains, it also introduces extreme volatility and risks for investors unprepared for a reversal.

A discounted cash flow (DCF) model estimates KSS's intrinsic value at $59.94 per share, significantly above its current price according to Yahoo Finance. However, this valuation assumes a stabilization in revenue and margins-a scenario that seems optimistic given the company's sustained declines. As Bloomberg noted, KSS remains down 20.2% over the past year and 32% since 2022 as reported on LinkedIn, highlighting the fragility of its recent gains.

The Case for Caution

For rational investors, the risks of meme stocks like KSS are twofold. First, they are exposed to the volatility of speculative trading, where price swings are driven by sentiment rather than earnings. Second, the underlying business lacks the resilience to sustain long-term growth. Even if KSS's stock price rebounds in the short term, its weak revenue trends and limited competitive advantages make it a poor candidate for capital preservation.

While the allure of quick profits from social media-driven rallies is tempting, history has shown that such strategies often end in losses when the hype fades. Kohl's serves as a cautionary tale: a company whose stock may rise on momentum but whose fundamentals remain a liability. In an era where retail investors wield outsized influence, the lesson is clear-long-term success requires looking beyond the noise and focusing on enduring value.