Should Value Investors Consider Dillard’s (DDS) Stock Now?

Value investing is one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that fly under the radar and make compelling purchases, or offer tempting discounts when compared to fair value?

– Zacks

One way to find these companies is to look at several key metrics and financial ratios, many of which are important in the stock value selection process. let’s put Dillard’s, Inc. DDS Put this equation together and see if it’s a good option for value-oriented investors right now, or if investors who subscribe to this methodology should look elsewhere for better choices:

PE . ratio

The key metric that investors always look at is the price-earnings ratio, or PE for short. This tells us how much investors are willing to pay for every dollar of earnings in a particular stock, easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the current PE ratio of the stock to: a) where this ratio has been in the past; b) How does it compare to the industry/sector average; and c) how it compares to the market as a whole.

On this front, Dillard’s has a twelve-month post-PE ratio of 8.22, as you can see in the chart below:

Zacks Investment ResearchImage source: Zacks Investment Research

This level actually compares favorably with the market as a whole, with the PE of the S&P 500 standing at around 24.32. If we focus on the long-term trend of the stock price, Dillard’s current PE puts it below its midpoint over the past five years.

Zacks Investment ResearchImage source: Zacks Investment Research

Furthermore, PE per share compares favorably with Zacks’s twelve-month retail and wholesale trailing earnings ratio, which is 29.16. At the very least, this indicates that the stock is currently undervalued, compared to its peers.

Zacks Investment ResearchImage source: Zacks Investment Research

We should also point out that Dillard has a forward PE (price relative to this year’s earnings) of just 8.89, which is slightly above the current level. So it is fair to expect an increase in the company’s share price in the near term.

P/S . ratio

Another key metric to note is the price/sales ratio. This approach compares the price of a particular stock to its total sales, with a lower reading generally considered better. Some people like this metric more than others that focus on value because it looks at sales, which is more difficult to manipulate with accounting tricks than profits.

Currently, Dillard’s has a P/S ratio of about 0.77. That’s below the S&P 500 average, which comes in at 5.05 now. Also, as we can see in the chart below, this is the lows and highs for this particular stock over the past few years.

Zacks Investment ResearchImage source: Zacks Investment Research

If anything, the DDS is at the lower end of its range in the time period of the P/S scale, indicating a certain level of undervalued trading – at least by historical standards.

Value Overview

Altogether, Dillard currently has a Zacks Value Score of A, which places it in the top 20% of all stocks we cover from this look. This makes Dillard a solid choice for value investors.

What about stock in general?

Although Dillard might be a good option for value investors, there are plenty of other factors to consider before investing in this name. In particular, it should be noted that the company has a Growth Score of F and a Momentum Score of C. This gives DDS a Zacks VGM score – or its overall baseline score – of A. (You can read more about Zacks Style scores here >>)

Meanwhile, the company’s latest earnings estimates have been encouraging. The current year has seen five estimates rise over the past 60 days compared to three lower, while the full 2021 estimate has seen three upward revisions compared to a downward estimate in the same time period.

This had a positive impact on the consensus estimate although the consensus estimate for the current year has improved by 19.7% in the past two months, while the estimate for the whole of 2021 has increased by 1.4%. You can see the consensus estimate trend and the stock’s recent price movement in the chart below:

This upside is why the stock boasts a Zacks #1 (strong buy) rating and why we expect outperformance from the company in the near term.

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Dillard’s is an inspiring choice for value investors, as it’s hard to beat the astonishing array of stats in this field. Our strong industry ranking (among the top 1% of over 250 industries) and Zacks’ #1 rank increases our confidence.

However, over the past two years, Zacks Retail – Regional Stores has underperformed the market as a whole, as you can see below:

Zacks Investment ResearchImage source: Zacks Investment Research

Therefore, value investors may want to wait for industry trends with this name to change first, but once that happens, this stock may be a compelling choice.

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