Turnaround Stories

For over 25 years, from 1979 to 2006, value investing outperformed growth strategies by earning a total return of 1646% to 1248% respectively. Over the last 12 years, however, growth has outpaced value: the total returns for the Russell Growth and Value indices were 223% and 118% respectively.

Of course, no one can predict exactly when the trend will flip again. However, there are several promising signs for value investors, as Barron’s recently highlighted:

“The setup for value is certainly improving. Historically, value does better than growth when profits are accelerating, as they are now. Deregulation and tax cuts should boost sectors heavily represented in value indexes, like financials, industrials, and energy. The gap between the cheapest and priciest stocks has also widened since last year, providing an incentive for investors to look for cheaper options…”

Gross Domestic Product also looks set for a turnaround. While GDP growth came in lower than the previous quarter it was the best first quarter since 2015. Consumer spending retreated, but low unemployment and increasing wages should help going forward. The first quarter may be affected by seasonal data quirks as well, potentially setting up a turnaround next quarter.

Against this backdrop, screening for a potentially overlooked value stock with signs of a turnaround itself makes for a compelling thesis. Department store operator Kohl’s Corporation (NYSE: KSS) seems to fit the bill. The company posted impressive numbers last quarter (more on those below) and finbox.io valuation models show nearly 30% upside. With Kohl’s set to announce earnings on the 22nd, let’s take a closer look at the company’s recent performance, competitive position, and strategic initiatives.

Kohl’s Business Model

Kohl’s is a department store operator retailing moderately-priced, proprietary and brand-name apparel, footwear, accessories, beauty, and home products. Women’s and men’s apparel represented half of Kohl’s sales while its national brand offerings grew to 58% of sales last year: