Among the Market's Most Shorted: 2 Firms With +40% Short Interest

Wolfspeed (WOLF) and Kohl's (KSS) are heavily shorted stocks, with over 40% of floated shares sold short, reflecting bearish sentiment regarding their financial health and leadership. Wolfspeed, facing a potential bankruptcy filing after rejecting debt restructuring proposals and a 59% stock drop, hinges on receiving $750 million in CHIPS Act funding, now jeopardized by potential revisions under President Trump; analysts at TD Cowen have suspended coverage due to the increased likelihood of financial restructuring. Kohl's, with short interest near 54% amid declining sales and CEO turnover due to misconduct, is undergoing a turnaround effort; while some analysts maintain a $9 price target, suggesting a potential short squeeze, others remain bearish, forecasting further declines.

Analysis

Wolfspeed (WOLF) and Kohl’s (KSS) are prominent battleground stocks, with short interest exceeding 40% of their floated shares, reflecting profound investor concerns about their financial viability and leadership. Wolfspeed, a chip company, saw its short interest surpass 45% as of May 15, its highest ever, and faces an acute risk of bankruptcy, as highlighted by a Wall Street Journal report claiming it is preparing such a filing after rejecting creditor proposals to restructure its $6.5 billion debt; this news caused its stock to plummet over 59% on May 21. The company's operational continuity heavily relies on a proposed $750 million from the CHIPS Act, which was never officially granted and is now jeopardized by potential legislative revisions, though it may still qualify for tax credits, with plans to apply for $600 million after June 30. The high uncertainty led TD Cowen to suspend coverage, citing the increasing likelihood of financial restructuring, while the 14-analyst consensus is a 'Hold' with an average price target of $11.15, far above its current $1.41 price. Kohl's, a retail company, has short interest near 54% of its floated shares as of May 15, also a record high, driven by a lack of positive year-over-year sales growth since Q4 2021—a quarter that benefited from weak 2020 comparatives—and significant leadership instability, marked by the recent ousting of its CEO, Ashley Buchanan, for misconduct, making her the third CEO in as many years. Despite an ongoing turnaround effort, analyst opinions diverge: Baird and Telsey Advisory Group see potential for a recovery to a $9 price target from its current $8.45 price, which could trigger a short squeeze, while Barclays and Goldman Sachs maintain bearish stances with a $5 target and a 'Sell' rating, respectively. The 15-analyst consensus for Kohl's is 'Reduce' with an average target of $9.75. Both companies are characterized by a strongly negative sentiment and operate in a speculative environment, with Wolfspeed facing particularly existential threats.

Key Decisions for Investors

• Investors should exercise extreme caution with Wolfspeed, recognizing the high probability of bankruptcy and speculative nature of its reliance on unconfirmed CHIPS Act funding or future tax credits; any exposure should be limited to highly risk-tolerant portfolios focused on event-driven catalysts, given the stock's severe recent decline and TD Cowen's coverage suspension due to restructuring risks.
• For Kohl's, investors should await concrete evidence of a successful operational turnaround, such as sustained positive sales growth and margin improvement, before considering new long positions, given its persistent sales decline, leadership instability, and mixed analyst outlook, despite the potential for a short squeeze on its heavily shorted stock.
• Both equities carry substantial downside risk due to their precarious financial health and extremely high short interest, necessitating thorough due diligence and active monitoring of restructuring efforts, funding developments for Wolfspeed, and operational execution for Kohl's, as these factors will be critical determinants of their future.