We recently compiled a list of the 10 Worst Performing NASDAQ Stocks in 2024. In this article, we are going to take a look at where Ulta Beauty, Inc. (NASDAQ:ULTA) stands against the other Worst Performing NASDAQ Stock in 2024.
Factors Driving Market Growth
Markets have been soaring for the better part of the year, with pullbacks acting as entry levels from where investors have joined and pushed the market higher. While artificial intelligence was one of the factors that drove many tech stocks higher, earnings results that were better than expected also had a significant impact.
Similarly, a resilient US economy that has stayed clear of recession amid high interest rates and inflation has also supported the upward momentum. With the NASDAQ and other major indices at all-time highs, investors are becoming increasingly concerned whether the strong upward momentum is sustainable.
READ ALSO: 10 Most Promising Future Stocks According to Analysts and 10 Most Promising Growth Stocks According to Hedge Funds.
Challenges and Investor Concerns
Valuations appearing overstretched after one of the longest bull runs are one factor that is sending jitters among the investment community. Similarly, concerns over the negative impact of high interest rates and uncertainty over the US election are slowly curtailing the upward momentum.
Bryn Talkington, managing partner of Requisite Capital Management, believes markets will remain choppy heading into year-end owing to the uncertainty around the US election.
“Until the election is over and we can confirm gridlock, I think at the headline number we’re not going to do much, but I think underneath the surface we’re going to see the haves and have nots,” she said.
Nevertheless, it is the impact of the soaring geopolitical tensions in the Middle East that threatens to affect supply lines that are keeping the markets on edge. The prospects of energy prices surging and fueling inflation on Israel attacking Iran is also taking a significant toll on investor’s sentiments on equities.
While interest rate cuts were expected to be the catalyst to push the equity markets to record highs, that was not the case, as everything seemed to have already been priced. Paul Christopher, head of investment strategy at Wells Fargo Investment, believes the US Federal Reserve is unlikely to cut aggressively as the better-than-expected jobs report in September and renewed worries of a spike in inflation act as a deterrent.
“Just really not ready to cut quite as aggressively as the markets had previously priced. I think if you take November from a half a point down to a quarter point hike, that’s not really a big deal, but it does require some adjustment in markets. There may be some adjustments to rate expectations for December and January as well,” he told CNBC’s “Squawk Box Asia” earlier this month.
While the US economy does not show enough deterioration to justify aggressive cuts, there are stocks listed on the NASDAQ that have underperformed, attributed to a number of factors. Top on the list are companies whose core businesses are negatively impacted by high interest rates that tend to affect consumer purchasing power.
Likewise, some of the worst-performing stocks in the NASDAQ have also taken a hit on high inflation. While inflation has started showing signs of edging lower even as the Fed continues to cut rates, some of the worst-performing stocks are showing signs of bottoming out as macroeconomics improves.
The October BofA Global Fund Manager survey indicates that investors are more optimistic than they have been in four years. 74% of investors think the United States will avoid a recession, demonstrating their optimism about the economy.
Likewise, Michael Hartnett, an investment strategist at BofA, said that investor sentiment is rising due to expectations of further rate cuts by the U.S. Federal Reserve and hopes that Beijing will release more stimulus to strengthen its economy.
Our Methodology
We utilized a stock screener to find NASDAQ-listed stocks with market caps exceeding $2 billion as of October 16. We then sorted the stocks in descending order based on their year-to-date share price performance. From this dataset, we identified the NASDAQ stocks with the largest YTD share price declines as of October 16. The following stocks are listed in descending order of their share price performance.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Ulta Beauty, Inc. (NASDAQ:ULTA)
Year to Date Gain: -22.56%
Number of Hedge Fund Holders: 46
Ulta Beauty, Inc. (NASDAQ:ULTA) is a consumer cyclical investment play that operates as a specialty beauty retailer. The company offers branded and private-label beauty products. Given that the company depends on consumers’ purchasing power to sell its products, it’s been badly hurt by high inflation and high interest rates that have significantly affected consumers’ purchasing ability.
Likewise, the stock is down by about 22.56%, affirming why it is among the worst-performing NASDAQ Stocks in 2024. According to analysts, the US beauty industry is still resilient, with yearly growth rates ranging from 2% to 5%.
However, Ulta Beauty, Inc. (NASDAQ:ULTA) is up against stiff competition, especially from Sephora’s growth through its collaboration with Kohl’s (NYSE:KSS). Concerns have been raised regarding Ulta’s capacity to hold onto its market share due to this competitive pressure and the normalization of post-pandemic beauty demand.
The stock remains under pressure amid concerns that Ulta’s competitive edge may be weakened by market fragmentation brought on by the expansion of beauty product distribution channels. Ulta may find it difficult to hold onto its current market position without turning to more aggressive promotional strategies, which could pressure margins, as consumers have more options for where to buy their beauty products.
Nevertheless, Ulta Beauty, Inc. (NASDAQ:ULTA) is still working on growth strategies in spite of the challenging environment. To provide on-demand delivery from more than 1,350 locations, the company has extended its partnership with DoorDash, which could improve its distribution capabilities and clientele. The company is also committed to launching new brands.
Ulta’s loyalty program has about 44 million members, making it a valuable asset in strengthening its recurring revenue base. Credit card revenue, which has grown to be a significant source of profit for the business, has been primarily driven by this robust loyalty network.
Here is what Diamond Hill Long-Short Fund said about 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 various 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.”
Overall ULTA ranks 10th on our list of 10 Worst Performing NASDAQ Stocks in 2024. While we acknowledge the potential of ULTA as an investment, our conviction lies in the belief that 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, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
