Is it Time to Buy Dillard's Stock on the Dip?

What investors should know about DDS before buying the stock

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Dillard's, Inc. (NYSE:DDS) is an upscale American department store chain that offers fashion apparel, beauty, and home collections from both national and exclusive brand sources. DDS operates 250 Dillard's locations and 32 clearance centers, spanning 29 states and an online store. Currently, the largest number of stores are located in Texas with 57 locations and Florida with 42 locations.

Dillard’s stock has increased an incredible 395% in price year-over-year and has added 317% in 2021 alone. Long-term support at the 100-day moving average has captured several selloffs since September 2020, though a recent gap lower sent DDS back below its 20-day moving average, which could still come in as an area of potential resistance.

dds dec 22

Despite this extreme growth, analysts are hesitant. Of the three in coverage, one says "hold," and two say "sell" or worse. Meanwhile, the 12-month consensus price target of $213.75 is a 15.5% discount to current levels. 

From a fundamental point of view, Dillard’s does not offer the greatest consistency, experiencing significant periods of top- and bottom-line decline in recent years. Since fiscal 2018 Dillard's revenues fell 6%. DDS' net income also decreased by more than $292 million between fiscal 2018 and fiscal 2020, with the retail company reporting $71.65 million in net losses for fiscal 2020.

However, Dillard’s has experienced a strong recovery over the past year, most notably generating incredible bottom-line growth. Over the past 12 months, DDS has grown its revenues 37% and has increased its net income by $680 million. In addition, Dillard’s has a manageable balance sheet with $620 million in cash and $607 million in total debt.

Nonetheless, Dillard's stock continues to be a high-risk value play despite trading at a great price-earnings ratio of 9.34 and a solid price-sales ratio of 0.93. The retail company’s history of inconsistency makes it difficult to foresee continued growth, which is reflected in Dillard's stock’s forward price-earnings ratio of 17.83.

It could be an optimal time to bet on the stock's next move with options however, as they're relatively inexpensive right now. This is per the equity's Schaeffer's Volatility Index (SVI) of 79%, which stands higher than just 18% of readings from the past year. This implies options traders are pricing in low volatility expectations for DDS at the moment. 

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