Shares of Kohl’s surged on Tuesday during a crazy trading session that immediately made me think of the meme stock manias of recent years. On a rollercoaster ride that captivated daytraders, Shares of Kohl’s rose from Monday's close at $10.42 per share, doubling briefly in value before giving up most of those gains within 30 minutes of the opening bell. But ultimately, Shares of Kohl’s closed 37% higher.

The Tuesday volume amounted to nearly 17 times the 30-day average, indicating a sudden rise in investor interest. However, there wasn't any material news, corporate announcement, or analyst upgrade to justify the sudden rise—confirming the hypothesis that the activity in the stock was a result of speculation and short interest dynamics fueled by social media.

A Traditional Meme Stock Scenario

So why the surge? Kohl's shares have all the characteristics of a meme stock—high short interest, visibility among retail investors, and high visibility on such platforms as Reddit's Wall Street Bets. FactSet figures indicate that nearly 50% of Kohl's outstanding shares are short, and that makes it a prime target for a short squeeze.

When a hot, shorted stock begins to rise rapidly, short sellers will scramble to cover by buying the stock, adding even greater buying pressure and pushing the stock price higher and higher. The cycle can generate rapid, short-term profits, which are usually followed by equally dramatic declines.

Neil Saunders, managing director at GlobalData, summed it up nicely: "There is a lot of irrational exuberance in the stock. It is a very similar scenario to what we used to have with Bed Bath & Beyond years ago. There is nothing really that Kohl's has done to really earn this kind of increase. The business fundamentals are still pretty weak."

Kohl's Stock Faces Harsh Reality

Despite the one-day boost, Kohl's stock is being weighed down by a string of long-term issues with its business. The retail chain of over 1,100 U.S. stores has been unable to match changing consumer tastes and growing competition from online retail behemoths and discount retailers.

Kohl's has also become a regular target for takeover speculation, activist investor campaigns, and even bankruptcy rumors of late. The departure of former CEO Michelle Gass and the departure of her replacement Ashley Buchanan in a conflict-of-interest scandal have left the company operating on an interim CEO—hardly a symbol of stability.

In the last month, Kohl's warned investors that it expects its sales to fall 5% to 7% this year in fiscal 2025.Comparable sales will fall 4% to 6%, as a result of continued headwinds in store traffic and also online.

Reddit Buzz Adds Fuel to the Fire

The rally in Kohl's stock appears to have been triggered, at least partially, by fresh fervor on Reddit's Wall Street Bets board—the very board that fueled GameStop and AMC to meme stock lore. Members labeled Kohl's as a short squeeze play, owing to its astronomically short interest and emotional equity among most retail traders.

Such hype-driven rally is familiar to market onlookers, who recall all too well the 2021 GameStop debacle. Similar to GameStop, Kohl's boasts a recognized brand name and faithful clientele, but in contrast to GameStop's case, no attempts at remodeling or updating are evident that would be the foundation of long-term profitability.

Proceed with Caution

Despite Kohl's stock shares being likely to remain volatile in the short run based on speculative interest, analysts caution that the stock's fundamentals are weak. Uncertainty over the company's leadership, sliding sales, and strategic mistakes leave little basis for hope in the long run. Individual investors must be cautious.

Kohl's stock price might return short-term highs, but the business problems at hand suggest the highs will be short-lived. In an industry more and more fueled by momentum and social media noise, it's always a good bet to separate hype from reality. And in the case of Kohl's shares, Tuesday's rebound appears to be more fueled by the former.