The past six months haven’t been great for Ulta. It just made a new 52-week low of $454, and shareholders have lost 30.9% of their capital. This might have investors contemplating their next move.
Given the weaker price action, is now a good time to buy ULTA? Find out in our full research report, it’s free.
Why Does Ulta Spark Debate?
Offering high-end prestige brands as well as lower-priced, mass-market ones, Ulta Beauty (NASDAQ: ULTA) is an American retailer that sells makeup, skincare, haircare, and fragrance products.
Two Things to Like:
1. Store Growth Signals an Offensive Strategy
The number of stores a retailer operates is a critical driver of how quickly company-level sales can grow.
Ulta sported 1,608 locations in the latest quarter. Over the last two years, it has opened new stores at a rapid clip by averaging 6.5% annual growth, among the fastest in the consumer retail sector. This gives it a chance to become a large, scaled business over time.
When a retailer opens new stores, it usually means it’s investing for growth because demand is greater than supply, especially in areas where consumers may not have a store within reasonable driving distance.
2. Surging Same-Store Sales Show Increasing Demand
Same-store sales is an industry measure of whether revenue is growing at existing stores, and it is driven by customer visits (often called traffic) and the average spending per customer (ticket).
Ulta’s demand has been spectacular for a retailer over the last two years. On average, the company has increased its same-store sales by an impressive 3.5% per year.
One Reason to Be Careful:
Long-Term Revenue Growth Disappoints
Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Unfortunately, Ulta’s 6.6% annualized revenue growth over the last three years was tepid. This wasn’t a great result compared to the rest of the consumer retail sector, but there are still things to like about Ulta.
Final Judgment
Ulta has huge potential even though it has some open questions. After the recent drawdown, the stock trades at 15.3× forward P/E (or $454 per share). Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.
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