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It is hard to get excited after looking at Dillard's' (NYSE:DDS) recent performance, when its stock has declined 28% over the past three months. But if you pay close attention, you might gather that its strong financials could mean that the stock could potentially see an increase in value in the long-term, given how markets usually reward companies with good financial health. Specifically, we decided to study Dillard's' ROE in this article.
ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. Put another way, it reveals the company's success at turning shareholder investments into profits.
How Is ROE Calculated?
The formula for ROE is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for Dillard's is:
33% = US$593m ÷ US$1.8b (Based on the trailing twelve months to February 2025).
The 'return' is the income the business earned over the last year. So, this means that for every $1 of its shareholder's investments, the company generates a profit of $0.33.
See our latest analysis for Dillard's
Why Is ROE Important For Earnings Growth?
So far, we've learned that ROE is a measure of a company's profitability. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.
Dillard's' Earnings Growth And 33% ROE
First thing first, we like that Dillard's has an impressive ROE. Additionally, the company's ROE is higher compared to the industry average of 17% which is quite remarkable. As a result, Dillard's' exceptional 30% net income growth seen over the past five years, doesn't come as a surprise.
We then compared Dillard's' net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 20% in the same 5-year period.
The basis for attaching value to a company is, to a great extent, tied to its earnings growth. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). This then helps them determine if the stock is placed for a bright or bleak future. Is DDS fairly valued? This infographic on the company's intrinsic value has everything you need to know.