Red Flag: Does Insider Trading Signal Heightened Risk for Kohl’s Investors?

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With shares of Kohl’s (NYSE:KSS) trading at around $43.35, is KSS an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Kohl’s is the ideal retail store for middle-income earners. To the credit of Kohl’s, this is a company that has never wavered and always stuck to its big-picture game plan. This simple yet effective tactic has led to great results through the years. Of course, quality merchandise at fair prices has also helped. That said, the stock hasn’t gone anywhere over the past decade, which has led to a great deal of frustration for investors. The 2.90 percent yield is nice, but it doesn’t make up for a treadmill-like experience in regards to stock appreciation. What does the future hold?

On the positive side, Kohl’s has shown steady revenue growth over the past few years, and they always show a profit. Kohl’s also has a Forward P/E of 9.17, operating cash flow of $1.75 billion, and a habit of pleasing analysts. For example, Buy vs. Sell recommendations are 13:1.

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On the negative side, Kohl’s saw a 5.6 percent drop in same-store sales in November. However, if you look a little deeper, this isn’t terrible news. Hurricane Sandy played a role, and consumers are turning to online shopping for Black Friday more than ever before. The latter reasoning could be looked at as a true negative, but Kohl’s is slowly growing its online presence. Most consumers have been happy with their online Kohl’s experiences, but not enough consumers think to use Kohl’s when shopping online. That will likely change in the future.

Kohl’s is now offering a full refund for any products returned with a receipt as well as an in-store credit for any products returned without a receipt. Whether this will be a good move or not remains to be seen. It will attract more customers, but it will also attract those who are looking to take advantage of the system.

Let’s take a look at some important numbers so we can get a better read on the situation.

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