Institutions Increase Short Positions Amid Poor Performance
The stock price of Kohl's, a well-known American department store chain, experienced a rollercoaster ride on July 22 (local time). This was due to word-of-mouth buzz online, which led individual investors to target it as a 'meme stock.' Some observers are speculating that a second GameStop incident may be unfolding.
On this day, Kohl's closed at $14.34 on the New York Stock Exchange, up 37.75% from the previous session. Immediately after the market opened, the stock price soared by as much as 105% compared to the previous session, only to give up much of those gains, resulting in extreme volatility. Trading volume also exceeded 200 million shares, surging to more than 23 times its average daily volume.
Kohl's did not release any special disclosures or announcements on this day. This has led to analysis that meme stock investors may have targeted Kohl's. In fact, on 'WallStreetBets,' a stock discussion forum on Reddit frequented by American individual investors, posts were made mentioning Kohl's as a potential meme stock target.
CNBC noted that Kohl's has many of the characteristics that made GameStop attractive to meme stock investors in the past. It is a traditional department store chain familiar to American retail investors and has suffered from prolonged poor performance. In addition, the short interest in its outstanding shares has reached nearly half, indicating a high concentration of short selling.
Neil Saunders, executive director at GlobalData, stated, "Kohl's has not taken any actions that would justify this level of share price increase. The business fundamentals remain extremely weak," adding, "The recent intensifying irrational frenzy surrounding the stock is reminiscent of what happened with Bed Bath & Beyond (BB&B) in the past."
BB&B was a U.S. home goods retailer that, along with GameStop in 2021, gained explosive popularity as a 'meme stock' among individual investors. However, after losing out to e-commerce giants such as Amazon, the company went bankrupt in 2023. Kohl's, too, has been struggling in recent years due to declining sales and intensifying competition. Previously, Kohl's projected that its sales for fiscal year 2025 would decrease by 5% to 7% compared to the previous year.
Hedge funds and institutional investors increase their short positions on stocks they expect to decline in price. If individual investors then buy up large quantities of such stocks and drive up the price sharply, institutional investors can be forced into a 'short squeeze,' as happened during the GameStop incident in 2021. A short squeeze refers to the phenomenon in which short sellers are compelled to buy shares in the open market to cover their borrowed positions, further driving up the stock price.
The previous GameStop incident began in 2021, when individual investors, rallying around Reddit's stock discussion forum, concentrated their buying to counter Wall Street institutional investors' short selling of GameStop shares. Over the course of 2021, GameStop's stock price surged by a staggering 2,400%.
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
