Is It Too Late To Consider Buying Dillard's, Inc. (NYSE:DDS)?

Dillard's (DDS) has long been a symbol of the struggling department store sector, but its recent valuation metrics raise an intriguing question: Is this undervalued stock still a viable opportunity, or has its best chance already passed?

The answer hinges on two competing forces: its historically low P/E ratio—a sign of undervaluation—and mounting risks to its earnings growth. Let's dissect the data to determine whether DDS is a contrarian buy, a risky gamble, or something in between.

The Undervaluation Case: A P/E Ratio Below Peers and the Industry

Dillard's trailing P/E ratio of 11.05 as of June 2025 places it far below both its retail peers and the broader sector.

• Industry Context: The retail sector's average P/E stands at 36.65, while Dillard's closest competitors—Macy's (P/E 5.77), Nordstrom (15.3), and TJX (31.3)—also trade at higher multiples. Even Kohl's (P/E 8.72), which is struggling, values its shares more richly than Dillard's.
• Historical Perspective: Dillard's 10-year average P/E is 10.29, meaning its current ratio is only 15% above its long-term mean. This suggests it's not in bubble territory, unlike high-growth peers.

The low P/E implies investors are pricing in skepticism about Dillard's ability to grow. But for value investors, this could signal a buying opportunity.

The Critical Risk: Negative Earnings Growth Forecasts

While DDS's valuation is compelling, its projected 24% annual decline in EPS over the next three years undermines its growth narrative.

The risks stem from:
1. Structural Challenges in Retail: Department stores face relentless competition from e-commerce giants and off-price retailers like TJX. Dillard's reliance on brick-and-mortar locations in declining mall markets has hurt foot traffic.
2. Debt and Capital Allocation: DDS carries a significant debt load, and its real estate investment trust (REIT) strategy—meant to monetize stores—hasn't yet delivered consistent returns.
3. Consumer Shifts: Younger shoppers increasingly favor fast fashion and online brands over traditional department stores, squeezing Dillard's customer base.

These headwinds mean even a P/E of 11.05 could prove too optimistic if earnings continue to shrink.

A Cautionary Tale for Investors

The stock's valuation looks attractive, but the path to upside is narrow:
- Near-Term Catalysts? DDS's recent stock price dip to $399.87 (from $467.78 in January) reflects investor pessimism. A rebound would require clear signs of stabilization in sales or cost-cutting success.
- Valuation vs. Reality: At a P/E of 11, DDS is priced for stagnation, not recovery. If earnings fall further, the stock could drift lower despite its “cheap” multiple.

Recommendation:
- For Aggressive Investors: DDS could be a speculative play for those with a long time horizon and tolerance for volatility. A 5% allocation to a diversified portfolio might make sense.
- For Conservatives: Wait for clearer signs of turnaround—such as stabilizing margins or strategic pivots (e.g., stronger e-commerce integration). The risks outweigh the rewards at current prices.

Alternative Plays: Consider higher-growth retailers like TJX (P/E 31.3) or Amazon (P/E 34.54), which offer better alignment between valuation and earnings momentum.

Conclusion

Dillard's (DDS) presents a classic value trap: cheap for a reason. While its P/E ratio suggests undervaluation, the stock's future hinges on an industry in decline. Investors must ask themselves: Can DDS adapt to survive, or is its low P/E simply a reflection of its irrelevance?

For now, the safest bet is caution. DDS might be a “bargain,” but the risks of further erosion in earnings—and thus valuation—make it a high-stakes gamble.

Final Take: DDS is a value play with significant risks. Proceed only if you're prepared for prolonged volatility—and have a strict exit strategy.