Dillard's (DDS): Evaluating Valuation After $30 Special Dividend and Strong Profit Growth

Dillard's (DDS) declared a special $30 per share dividend after a period of profit improvement in the third quarter, signaling financial strength and a shareholder-focused approach that is fueling renewed optimism among investors.

See our latest analysis for Dillard's.

The special dividend comes on the heels of some headline-making moves for Dillard's, including a refreshed product launch, a continued share buyback program, and third-quarter earnings that outpaced last year's results. The momentum is clearly building, as reflected in a 35.7% year-to-date share price return and an extraordinary 39.2% total shareholder return over the last year. Looking further out, the retailer's five-year total shareholder return sits at a remarkable 1,519%, underscoring long-term value creation for investors.

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But with shares trading well above analyst price targets and such high returns in recent years, is Dillard’s truly undervalued at these levels, or has the market already priced in all the good news?

Price-to-Earnings of 16.4x: Is it justified?

Dillard's trades at a price-to-earnings (P/E) ratio of 16.4x, notably below both its peer average of 21.2x and the broader US market at 18.1x. This suggests investors are currently paying a lower price for each dollar of Dillard’s earnings compared to what they would pay for similar companies in the sector.

The P/E ratio measures how much investors are willing to spend for one unit of earnings. It is a widely used valuation metric, especially in retail, as it reflects market expectations of future profitability. In Dillard’s case, a lower P/E relative to peers could point to skepticism about its ability to sustain recent earnings levels, or it may highlight undervaluation overlooked by the market.

However, while Dillard’s P/E stands well below its industry and peer benchmarks, it is actually above the estimated "fair value" P/E ratio of 10.6x. This signals that the stock could be priced higher than what a regression-based model would suggest as reasonable for its growth and risk profile. This potential gap is something the market could adjust toward over time.

Explore the SWS fair ratio for Dillard's

Result: Price-to-Earnings of 16.4x (UNDERVALUED)

However, slowing revenue and declining net income growth could challenge Dillard’s valuation if the company struggles to maintain its recent performance momentum.

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

Another View: SWS DCF Model Challenges the Multiple

While the price-to-earnings ratio paints Dillard’s as potentially undervalued, our SWS DCF model suggests a different perspective. According to this method, Dillard’s current share price of $611.56 is above its estimated fair value of $530.64, indicating that the stock may actually be overvalued when projected future cash flows are taken into account. This raises an important question: does recent market enthusiasm outweigh fundamental long-term value?

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 926 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 want to reach your own conclusions or test alternative perspectives, you can dive into the data and craft your narrative in just a few minutes. So why not Do it your way?

A great starting point for your Dillard's research is our analysis highlighting 2 key rewards and 2 important warning signs 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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