Dillard's (DDS): Evaluating Valuation After Recent Shareholder Return Surge and Revenue Decline

Dillard's (DDS) shares have delivered strong returns for investors over the past year, rising nearly 58%. The company’s latest performance has caught the eye of the market, with recent gains outpacing broader retail peers.

See our latest analysis for Dillard's.

Dillard's momentum is hard to ignore, with a stunning 57.8% total shareholder return over the past year and a 23% share price gain in just three months. Buyers appear increasingly optimistic that Dillard's can continue surprising to the upside. However, its recent pullback reminds investors that volatility comes with the territory.

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But with the stock’s meteoric rise and recent declines in revenue and net income, investors now face a pivotal question: is Dillard’s undervalued after the pullback, or is the market already pricing in future growth?

Price-to-Earnings of 17.1x: Is it justified?

Dillard's is trading at a price-to-earnings (P/E) ratio of 17.1x, which is lower than both its global industry peers and the wider US market. Despite the stock's sharp run-up, this multiple suggests the market is not assigning a premium for its current level of profitability.

The P/E ratio compares a company's share price to its earnings per share and is a classic gauge for how much investors are willing to pay for each dollar of profit. For a retailer like Dillard's, this matters because it reflects expectations for both stable performance and future growth, relative to alternatives in the same sector.

Right now, Dillard's P/E sits well below the global Multiline Retail industry average of 20.2x and the US market's 18.2x. This presents Dillard's as a potential value pick within retail. However, it is important to note that its P/E is still higher than the estimated fair P/E ratio of 10.7x. If the market focuses more on underlying profit sustainability rather than recent share price momentum, there is room for the multiple to shift towards that fair value level.

Explore the SWS fair ratio for Dillard's

Result: Price-to-Earnings of 17.1x (UNDERVALUED)

However, weaker annual revenue and net income raise concerns that market optimism could fade if fundamentals continue to retreat.

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

Another View: Discounted Cash Flow vs. Market Multiples

While Dillard's appears undervalued based on its price-to-earnings ratio, our DCF model points to a different story. The SWS DCF model estimates the fair value of the shares at $479.59, about 24% below the current price, which suggests potential overvaluation if future cash flows disappoint.

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 879 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 things differently or want to uncover your own insights, you can assemble a unique narrative based on the data 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 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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