Jim Cramer warns Kohl's stock short sellers are playing with fire

Jim Cramer is strongly advising Kohl's (KSS) short sellers to cover their positions following a sharp short squeeze that briefly doubled shares from under $10. Despite a recent pullback to around $12, Cramer warns that continued shorting is dangerous given the stock's reported 50% short interest, sound balance sheet, over 4% dividend yield, extremely low 0.07 P/S multiple, and the potential for renewed buyout interest, which previously surfaced at $50 per share. He likens the risk for shorts to the GME squeeze, suggesting potential for further pain.

Analysis

Kohl's Corporation (KSS) has become a focal point of intense market speculation following a significant short squeeze that propelled its shares from below $10 to nearly $20. Despite a subsequent pullback to approximately $12, the situation remains precarious for short sellers, according to analysis highlighted by Jim Cramer. The primary risk stems from an exceptionally high short interest, reportedly near 50% of the float, creating a technical environment ripe for further squeezes, drawing parallels to the 2021 GameStop event. The bearish thesis is fundamentally challenged by several factors: the company's balance sheet is described as adequate, its dividend yield exceeds 4.0%, and its price-to-sales multiple is an extremely low 0.07. These metrics may attract value and income investors, creating a support level for the stock. Furthermore, a significant catalyst risk exists in the form of potential M&A activity. The company previously attracted three bidders at a $50 per share valuation, and the current depressed price could logically reignite takeover interest, which would likely occur at a substantial premium and be highly detrimental to any remaining short positions.

Key Decisions for Investors

• Investors holding short positions in KSS should recognize the significant risk of another squeeze driven by high short interest and should strongly consider covering their positions to avoid catastrophic losses from a potential buyout offer.
• For those considering a long position, the stock presents a speculative value opportunity based on its low 0.07 price-to-sales multiple, a dividend yield over 4%, and the considerable upside potential from a re-emerged M&A catalyst.
• All market participants should closely monitor for any news of renewed takeover interest, as this is the most potent near-term catalyst identified that could cause a rapid and substantial repricing of the stock.