Ulta Salon, Cosmetics & Fragrance, Inc. (ULTA), J.C. Penney Company, Inc. (JCP): A Stock to Buy on Weakness

Sephora is a pretty well-known brand and has a pretty wide presence in the U.S. Its presence inside J.C. Penney Company, Inc. (NYSE:JCP)’s stores has certainly expanded its reach, and customers have embraced the store within-a-store concept well. J.C. Penney Company, Inc. (NYSE:JCP) might not be doing very well, but Sephora probably is and this means that there is a lot of scope for Ulta Salon’s boutiques to grow going forward as it keeps expanding.

A combination of these initiatives should help the company sustain its growth in the long run, but given the fact that it’s been missing estimates on guidance for the past two quarters, it would make sense to keep a close eye on the company’s execution.

Ulta is making a lot of moves and is placed in a better position than peers such as Elizabeth Arden, Inc. (NASDAQ:RDEN), which doesn’t enjoy the diversity that Ulta has. Elizabeth Arden, Inc. (NASDAQ:RDEN) is primarily known for its Prevage anti-aging creams, apart from celebrity fragrances, and is quite dependent on departmental stores for revenue. The company posted a loss in its most recent quarter and even though it trades at a relatively cheaper 28 times earnings as compared to Ulta Salon, I think it’s not a good bet.

The bottom line

Ulta Salon’s store presence, brand diversity, and ever growing revenue and earnings are points of strength which justify its premium valuation over peers, but now won’t be the right time to buy the stock due to reasons mentioned above.

Considering all these factors, it would be prudent for investors to closely track Ulta Salon and look for any signs of weakness in the near-future. The company is still growing and growing well, but now isn’t a good time to buy into this growth story. As such, keep your eyes open and scoop up Ulta Salon shares when the opportunity arises going forward.

Harsh Chauhan has no position in any stocks mentioned. The Motley Fool recommends Ulta Salon, Cosmetics & Fragrance. The Motley Fool owns shares of Ulta Salon, Cosmetics & Fragrance. Harsh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article A Stock to Buy on Weakness originally appeared on Fool.com is written by Harsh Chauhan.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.