Positive Sentiment Still Eludes Kohl's Corporation (NYSE:KSS) Following 28% Share Price Slump

To the annoyance of some shareholders, Kohl's Corporation (NYSE:KSS) shares are down a considerable 28% in the last month, which continues a horrid run for the company. For any long-term shareholders, the last month ends a year to forget by locking in a 70% share price decline.

Since its price has dipped substantially, Kohl's may be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 8.4x, since almost half of all companies in the United States have P/E ratios greater than 18x and even P/E's higher than 33x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

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Kohl's could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

View our latest analysis for Kohl's

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Kohl's.

How Is Kohl's' Growth Trending?

The only time you'd be truly comfortable seeing a P/E as depressed as Kohl's' is when the company's growth is on track to lag the market decidedly.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 65%. The last three years don't look nice either as the company has shrunk EPS by 85% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 22% per year during the coming three years according to the ten analysts following the company. With the market only predicted to deliver 11% per year, the company is positioned for a stronger earnings result.

With this information, we find it odd that Kohl's is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Key Takeaway

Having almost fallen off a cliff, Kohl's' share price has pulled its P/E way down as well. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Kohl's currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Before you settle on your opinion, we've discovered 4 warning signs for Kohl's (1 is a bit unpleasant!) that you should be aware of.

If these risks are making you reconsider your opinion on Kohl's, explore our interactive list of high quality stocks to get an idea of what else is out there.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.