1. Ulta Beauty Inc. (NASDAQ:ULTA)
Number of Hedge Fund Holders: 46
Ulta Beauty, Inc. (NASDAQ:ULTA) is a leading American chain of beauty and cosmetics stores, offering over 600 brands. Among its featured vegan brands are IGK, IT Brushes, Nailtopia, and Tanology. In 2020, Ulta launched its ‘Conscious Beauty’ program across all stores, online, and via its app. This initiative highlights vegan, cruelty-free, and sustainably packaged products, appealing to eco-conscious consumers.
Despite some challenges in its Q2 FY2024 earnings, Ulta Beauty, Inc. (NASDAQ:ULTA) remains a strong investment choice due to its strategic strengths. The company saw a modest 0.9% increase in net sales, reaching $2.55 billion, demonstrating resilience despite a 1.2% decline in comparable sales in a tough retail landscape.
On October 21, JPMorgan raised its price target for Ulta Beauty, Inc. (NASDAQ:ULTA) to $472 from $450, maintaining an Overweight rating, but noted a cautious outlook for 2025 based on Ulta’s recent Analyst Day presentation. Ulta’s management provided conservative guidance, anticipating that comparable store sales growth may fall below the typical 3-4% range and operating margins could dip under 12%, reaching a minimum of 11%. This suggests flat or potentially declining earnings for 2025, taking into account projected unit growth, comparable sales, margin pressures, and EPS growth through share repurchases. That said, the analysis indicated that consensus for Ulta’s 2025 EPS is aligning around $23, based on an estimated 1% same-store sales increase and an 11.6% operating margin.
Diamond Hill Long-Short Fund stated the following regarding Ulta Beauty, Inc. (NASDAQ:ULTA) in its Q2 2024 investor letter:
“Still-rising valuations have made identifying attractively valued, long ideas increasingly challenging — though we still found a few in Q2 that we believe the market is overlooking amid its increasingly narrow focus on the mega-cap technology stocks dominating the major indices. We established new long positions in VeriSign, Ulta Beauty, Inc. (NASDAQ:ULTA), Sysco Corporation and Lamb Weston Holdings during the quarter.
Ulta is a leading US specialty beauty retailer. As inflation has remained relatively elevated and consumers have found ways to economize and moderate discretionary spending, we believe Ulta is well-positioned to take share given its compelling portfolio of beauty brands across a range of price points, including its own private-label brand. We believe the current share price fails to account for an attractive outlook for the company and capitalized on a low valuation to initiate a position in Q2.”
While we acknowledge the potential of ULTA, our conviction lies in the belief that certain AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ULTA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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