We came across a bullish thesis on Ulta Beauty, Inc. (ULTA) on Value Investing Subreddit Page by somalley3. In this article, we will summarize the bulls’ thesis on ULTA. Ulta Beauty, Inc. (ULTA)’s share was trading at $415 as of Jan 27th. ULTA’s trailing and forward P/E were 16.73 and 17.64 respectively according to Yahoo Finance.
A customer shopping for lifestyle and beauty products at a physical store.
Ulta Beauty, a well-known beauty retailer, has established itself as a go-to destination for a wide range of beauty, wellness, and self-care products across various demographics. Whether for personal use or as a favorite of loyal customers, Ulta’s presence in shopping centers across suburban America makes it a household name. This broad appeal is underscored by a customer base that deeply engages with the brand, with over 44 million loyalty program members accounting for 95% of the company’s sales. The success of this loyalty program speaks to Ulta’s ability to create a dedicated community of “beauty enthusiasts,” people who view beauty as not just a product but as a hobby, wellness tool, and form of self-expression.
Ulta’s competitive advantage stems from its unique ability to cater to all customer segments. It is the only retailer that successfully merges mass-market and high-end prestige products under one roof. By convincing premium brands that they can coexist with more affordable beauty lines, Ulta has bridged a divide that has traditionally separated high-end and drug-store beauty products. This positioning has helped Ulta form long-term relationships with hundreds of brands, ensuring a wide selection and positioning itself at the forefront of beauty industry trends. Additionally, Ulta’s store layout, combining both mass and prestige products, and its treasure trove of data on loyalty members create a formidable moat that sets it apart from competitors like Amazon and Sephora.
Despite this, Ulta has seen its stock price drop in recent times, primarily due to a market shift following strong pandemic growth and some challenges in 2024. This presents a potential opportunity for long-term investors, as the company’s fundamentals remain solid. Over the past decade, Ulta has delivered impressive growth with a 14.5% annual revenue increase and a 50% return on equity, while reinvesting only a fraction of its earnings. This efficient use of capital, particularly through significant share buybacks, has helped Ulta increase shareholder value over time. Although its stock has become cheaper recently, with a price-to-earnings ratio of around 17, the company’s growth trajectory, combined with its strong brand and operational excellence, presents a compelling case for those willing to look beyond short-term volatility.
Looking forward, Ulta’s valuation appears attractive, with its earnings growth expected to slow down but still remain robust. Assuming net income growth of 2% per year and a continued focus on share repurchases, Ulta could generate a solid annual return of 6%, with potential for even higher returns if the company’s growth picks up or its valuation multiple increases. Additionally, Ulta’s expansion plans, including a greater presence within Target stores and potential international growth, especially in Mexico, could provide a significant boost. At its current stock price of $400–$430 per share, Ulta appears to be trading at a discount, presenting a strong opportunity for investors to capitalize on its long-term potential.
Ulta Beauty, Inc. (ULTA) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 40 hedge fund portfolios held ULTA at the end of the third quarter which was 46 in the previous quarter. While we acknowledge the risk and potential of ULTA as an investment, our conviction lies in the belief that some 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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Disclosure: None. This article was originally published at Insider Monkey.