A Look At Dillard's (DDS) Valuation As Stronger First Quarter Results Lift Earnings

Dillard's (DDS) reported first quarter results that show higher sales, revenue, and net income compared with the same period last year, putting the latest earnings firmly in focus for anyone tracking the stock.

See our latest analysis for Dillard's.

Following the earnings release, the share price has risen 1.8% over the last day and 5.8% over the past week, yet remains down 11.8% year to date. At the same time, the 1 year total shareholder return of 40.34% and the very large 5 year figure of 428.55% highlight how strong the longer term payoff has been for investors who stayed in the stock.

If stronger earnings have you thinking about where else growth stories could emerge next, take a moment to scan the 20 top founder-led companies

With earnings per share rising and the stock still down year to date, investors are left with a simple question: Is Dillard's trading below what its fundamentals suggest, or is the market already pricing in future growth?

Price-to-Earnings of 13.4x: Is it justified?

Dillard's currently trades on a P/E of 13.4x, which sits slightly below both the US market average and peers in the global Multiline Retail industry, even after the share price strength over the past year.

The P/E ratio compares the share price with earnings per share and gives you a quick sense of how much investors are paying for each dollar of profit. For a retailer like Dillard's, with earnings that have grown 13.8% over the past year and net profit margins of 9.9%, the P/E helps frame whether that earnings profile is being priced higher or lower than similar companies.

Here, the picture is mixed. On one hand, Dillard's P/E of 13.4x is below the US market average of 18.6x and below the global Multiline Retail industry average of 19x, which suggests the stock is not being priced at a premium to the sector or the broader market. On the other hand, when compared with the estimated fair P/E of 11.9x, the current multiple looks somewhat rich. This points to room for the valuation multiple to move closer to that fair ratio level if market expectations cool.

That tension between current and fair P/E is where investors often focus, and the SWS fair ratio is designed to show where the valuation could settle if it aligns more closely with fundamentals over time. Explore the SWS fair ratio for Dillard's

Result: Price-to-Earnings of 13.4x (ABOUT RIGHT)

However, it is still important to remember that annual net income fell 7.7%, and the stock is down 11.8% year to date, both of which could challenge a richer valuation narrative.

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

Another View: Cash Flows Tell a Different Story

While the 13.4x P/E suggests Dillard's is in line with peers, the SWS DCF model paints a tougher picture. With the stock at $561.80 and the model pointing to a future cash flow value of $390.04, the shares look materially overvalued on this second yardstick.

That gap is wide enough to matter for anyone thinking about risk. It raises a clear question for you as an investor: which signal carries more weight, current earnings or the cash flows underpinning them?

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 48 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

Given the mixed signals in these results, it is worth reviewing the full picture for yourself promptly and then weighing up the 3 key rewards and 1 important warning sign.

Looking for more investment ideas?

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• Target long term value by scanning companies that combine quality with potential mispricing through the 48 high quality undervalued stocks.
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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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