Dillard's (DDS): Assessing Valuation as Focus Shifts from Expansion to Store Optimization and Slower Growth

Dillard's (DDS) is shifting its focus from expansion to the optimization of current stores after recent commentary pointed to a slowdown in same-store sales and no new stores on the horizon. This move raises questions about how management will approach future growth and adapt its pricing or marketing strategies.

See our latest analysis for Dillard's.

Dillard's share price momentum has been impressive, with an 8% jump over the past month and a 41% climb in the last quarter. Despite operational headwinds, the retailer’s one-year total shareholder return of 75% and astonishing 1,554% five-year total return keep it firmly in the spotlight for investors who believe in compounding returns, even during periods of short-term turbulence.

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With Dillard's facing slowing growth and a share price well above analyst targets, the key question investors must weigh is whether the stock offers hidden value or if every bit of future growth is already reflected in the price.

Price-to-Earnings of 16.9x: Is it justified?

Dillard's trades at a price-to-earnings ratio of 16.9x, which is below both its peer and industry averages. This hints at relative value for current investors.

The price-to-earnings ratio measures how much investors are willing to pay for a dollar of the company's earnings. It is a central metric for valuing established retailers like Dillard's. For a company with substantial profits and a long operating history, it often signals how optimistic the market is about future earnings power.

Dillard's 16.9x earnings multiple is meaningfully lower than the industry average of 20.9x and the peer average of 24.9x. This suggests investors do not expect outsized earnings growth and may be pricing in slowing momentum. However, relative to the estimated fair price-to-earnings ratio of 10.2x, Dillard's still trades at a premium. This indicates the market may need further conviction to justify higher levels.

Explore the SWS fair ratio for Dillard's

Result: Price-to-Earnings of 16.9x (ABOUT RIGHT)

However, slowing revenue and falling net income could challenge the case for further gains, especially if retail headwinds worsen from this point.

Find out about the key risks to this Dillard's narrative.

Another View: SWS DCF Model Suggests Overvaluation

Taking a different approach, the SWS DCF model estimates Dillard's fair value at $563.42. This is about 10% below the current share price. In contrast to the multiples-based view, this cash flow-based method suggests the market is now pricing in more optimism than future earnings might support.

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Dillard's for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Dillard's Narrative

If you see this differently or want to dig deeper into the data, you can build your own perspective in just a few minutes. Do it your way

A great starting point for your Dillard's research is our analysis highlighting 2 key rewards and 1 important warning sign that could impact your investment decision.

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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.

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