Macy’s (NYSE: M) is trading at a valuation that looks unusually low in an expensive equity market, with the department-store operator valued at less than 10 times trailing earnings and just above 10 times next year’s expected earnings. Yet the discount reflects a market that remains skeptical about the long-term viability of traditional department stores, even as Macy’s retains substantial real estate assets and continues to generate billions in annual revenue.

A Low Valuation Reflects a Difficult Retail Reality

Macy’s trailing earnings stand at approximately $2.42 per share, while next year’s expected earnings are around $2.33 per share. On the surface, those figures suggest investors are paying relatively little for the company’s existing earnings power. The problem is that the market is not necessarily valuing Macy’s as a stable earnings compounder. Instead, the low multiple reflects expectations that its operating business could continue deteriorating.

The broader shift toward e-commerce has been particularly damaging to department stores. Macy’s shares remain about 66% below their 2015 peak, illustrating how dramatically investor sentiment toward the traditional retail model has changed. The company’s remaining physical-store footprint is therefore viewed less as an established competitive advantage and more as a potential structural burden.

Real Estate Creates an Intriguing Valuation Cushion

One reason the stock attracts value-oriented investors is Macy’s ownership of much of the real estate supporting its remaining stores. Estimates of the portfolio’s value range from roughly $5 billion to $15 billion, while Macy’s market capitalization is around $6 billion. Even the lower end of those estimates is substantial relative to the company’s equity value.

The retail business itself also retains meaningful scale. Macy’s generated approximately $22.6 billion in sales last year and produced $849 million in pretax income. In addition, current assets and current liabilities are each around $7 billion, suggesting that the company’s valuation cannot be assessed solely by looking at its earnings multiple.

The Real Problem Is Unlocking That Value

Asset value, however, does not automatically translate into shareholder value. Selling valuable store properties can remove locations that continue generating revenue, while closing stores can involve significant costs. Potential buyers may also be limited because many prospective retail users are confronting the same structural challenges facing Macy’s.

That creates an important distinction between theoretical asset value and realizable value. With U.S. store closures expected to reach approximately 7,900 this year compared with 5,500 openings, demand for additional retail locations remains uncertain. Macy’s may therefore have considerable assets on its balance sheet without having an easy mechanism to monetize them at attractive prices.

Looking ahead, the investment case will depend on whether Macy’s can stabilize its retail operations while selectively unlocking the value embedded in its real estate portfolio. A low earnings multiple can provide a margin of safety, but it does not eliminate the structural risks facing department stores. Investors will need evidence that declining physical retail demand can be contained before the stock’s apparent cheapness becomes a durable value opportunity rather than a reflection of continuing business deterioration.