Dillard's (DDS) has caught the attention of investors this week as the company shifts its focus toward optimizing existing stores instead of expanding its footprint. This move comes after commentary highlighting ongoing challenges with sales performance, which may not be what growth-oriented shareholders were hoping to hear. When a major retailer changes its playbook, especially if that means streamlining operations rather than opening new locations, it signals a different set of priorities and often elicits an immediate response from the market.

This strategic pivot from Dillard's comes against the backdrop of a stock that has delivered substantial returns over the past year, with the share price climbing 68%. Momentum has been especially strong in recent months, and Dillard's performance since the start of the year easily outpaces many retail peers. However, the renewed emphasis on existing store optimization and muted sales figures could indicate that management is prioritizing stability and cost control over rapid expansion. This message may shape investor expectations going forward.

With the stock riding high after a year of gains, is Dillard's undervalued based on its fundamentals, or is the latest news a signal that the market has already priced in future growth?

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

Dillard's is currently trading at a price-to-earnings (P/E) ratio of 16.9x, which is below both the US market average of 19.1x and the global multiline retail industry average of 21.9x. This suggests the stock appears undervalued on this metric compared to its peers and the broader market.

The price-to-earnings ratio measures how much investors are willing to pay for each dollar of a company's earnings. It is particularly relevant for retailers like Dillard's, where profits can fluctuate and industry comparisons are key for judging value. A lower P/E could indicate market skepticism about future growth or stability, or it might reflect relative strength and operational efficiency.

Although the company's earnings have shown signs of decline recently, its P/E ratio still makes it look attractively valued versus similar companies. The market may be discounting potential challenges ahead, but on a price-to-earnings basis, Dillard's stands out as good value for investors seeking exposure in the retail sector.

Result: Fair Value of $623.76 (ABOUT RIGHT)

See our latest analysis for Dillard's.

However, slowing revenue and net income growth present risks. This suggests that any operational missteps could sharply impact Dillard's recent momentum.

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

Another View: The DCF Model Offers a Check

While Dillard's appears attractively valued based on earnings compared to industry and market standards, our SWS DCF model suggests a less optimistic view. This method hints the market may be overestimating the company's fair value. Which story will play out?

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

Stay updated when valuation signals shift by adding Dillard's to your watchlist or portfolio. Alternatively, explore our screener to discover other companies that fit your criteria.

Build Your Own Dillard's Narrative

If you see things differently, or want to dig deeper into the numbers yourself, you can easily shape your own view of Dillard's in just 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.