Dillard's (DDS) Pullback Puts Its Valuation Back In Focus

Recent performance context for Dillard's stock

Dillard's (DDS) has seen mixed share performance recently, with the stock up over the past day and month, but down over the past 3 months and year to date, prompting closer attention from investors.

See our latest analysis for Dillard's.

At the current share price of $568.27, Dillard's has posted a 7.75% 7 day share price return and a 2.42% 30 day share price return, but the 90 day share price return is down 6.69% and the year to date share price return is down 10.78%. In contrast, the 1 year total shareholder return of 22.58% and 5 year total shareholder return of 303.92% indicate that long term holders have seen much stronger results than recent traders.

If Dillard's price action has you thinking about where else momentum could build, this is a good moment to scan 18 top founder-led companies

After a strong multi year run and a recent pullback in Dillard's shares, the question now is whether the valuation still offers enough upside potential to justify the risks from here.

Price-to-Earnings of 13.5x: Is it justified?

Dillard's currently trades on a P/E of 13.5x, which sits below both the US market and the global multiline retail peer group, yet above its own estimated fair level.

The P/E multiple compares the share price to the company’s earnings per share, so it gives a quick sense of how much investors are paying for each dollar of Dillard's current earnings.

Here, the market price implies a richer valuation than the SWS fair P/E estimate of 10x. This points to investors paying a premium relative to that fair ratio benchmark. At the same time, the 13.5x multiple is well under the Global Multiline Retail industry average of 19.8x and the peer average of 23.2x. This suggests the market is attaching a lower earnings multiple to Dillard's than it does to many comparable retailers and leaves room for that gap to close toward the level the fair ratio signals.

Explore the SWS fair ratio for Dillard's

Result: Price-to-Earnings of 13.5x (ABOUT RIGHT)

However, Dillard's faces risks if annual net income continues to decline, and if any slowdown in its US$6.6b retail operations unsettles confidence in the current P/E premium.

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

Another view on Dillard's valuation

Looking at Dillard's through the SWS DCF model gives a very different picture. In this view, the stock at $568.27 is trading above an estimated future cash flow value of $371.99, which points to an overvalued result rather than the broadly fair P/E signal. So which lens should matter more for you as an investor?

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 50 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

Weighing up the mix of positives and concerns around Dillard's, do you want to move quickly from headline impressions to your own evidence based view? To see how the key risks stack up against the potential rewards, take a closer look at the 3 key rewards and 1 important warning sign.

Looking for more investment ideas beyond Dillard's?

If Dillard's has sharpened your focus on valuation and risk, do not stop here. Use the Simply Wall St screener to line up your next research targets.

• Target potential mispricings by scanning 50 high quality undervalued stocks that pair solid fundamentals with attractive valuations.
• Strengthen your income watchlist by reviewing 9 dividend fortresses built around higher yielding companies.
• Prioritize capital preservation by assessing 81 resilient stocks with low risk scores that score well on resilience and financial risk checks.

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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