Goldman Sachs Group, Inc. (GS): Is Ulta Salon, Cosmetics & Fragrance, Inc. (ULTA) Destined for Greatness?

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Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA)’s latest quarterly revenue was up 23% over the year-ago quarter, and same-store sales popped by a respectable 6.7%. The company is currently focusing on its online sales platform, which has driven significant revenue growth over the past few quarters. Fool analyst Sara Hov notes that Ulta’s management has an ambitious plan to open 750 new stores over the next few years, bringing the total number of stores close to 1,200. Ulta’s aggressive store expansion will certainly result in additional revenue, but it may crimp margins and is likely to suppress free cash flow as well while the company spends on its buildout.

Ulta’s big quarter hasn’t been enough to sway everyone on Wall Street, though. Its stock was the target of another buy from Lone Pine Capital, but Goldman Sachs Group, Inc. (NYSE:GS) downgraded Ulta to hold around the same time. Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA)’s not exactly cheap right now with a 36 P/E and a far uglier 102 price-to-free cash flow ratio, and that can make some investors jittery. Keep in mind, however, that the company wants to more than double its store count, and that — at least in theory — should drive much higher earnings and free cash flow once more funds are freed up from expansion for other purposes.

Putting the pieces together
Today, Ulta has many of the qualities that make up a great stock, but no stock is truly perfect. Digging deeper can help you uncover the answers you need to make a great buy — or to stay away from a stock that’s going nowhere.

The article Is Ulta Salon Destined for Greatness? originally appeared on Fool.com and is written by Alex Planes.

Fool contributor Alex Planes has no position in any stocks mentioned. The Motley Fool recommends Goldman Sachs. It recommends and owns shares of Ulta Salon, Cosmetics & Fragrance.

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