Where Do Hedge Funds Stand On Ulta Beauty, Inc. (ULTA)?

In this article we are going to use hedge fund sentiment as a tool and determine whether Ulta Beauty, Inc. (NASDAQ:ULTA) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Is Ulta Beauty, Inc. (NASDAQ:ULTA) an outstanding investment now? Investors who are in the know were turning bullish. The number of bullish hedge fund bets improved by 3 in recent months. Ulta Beauty, Inc. (NASDAQ:ULTA) was in 46 hedge funds’ portfolios at the end of March. The all time high for this statistic is 46. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that ULTA isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 43 hedge funds in our database with ULTA holdings at the end of December.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Phillip Gross of Adage Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation, which is why we are checking out this inflation play. We go through lists like 10 best gold stocks to buy to identify promising stocks. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind let’s analyze the new hedge fund action surrounding Ulta Beauty, Inc. (NASDAQ:ULTA).

Do Hedge Funds Think ULTA Is A Good Stock To Buy Now?

Heading into the second quarter of 2021, a total of 46 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 7% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards ULTA over the last 23 quarters. With hedge funds’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

The largest stake in Ulta Beauty, Inc. (NASDAQ:ULTA) was held by Select Equity Group, which reported holding $730.8 million worth of stock at the end of December. It was followed by Holocene Advisors with a $172 million position. Other investors bullish on the company included Leonard Green & Partners, Citadel Investment Group, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Kettle Hill Capital Management allocated the biggest weight to Ulta Beauty, Inc. (NASDAQ:ULTA), around 4.81% of its 13F portfolio. Teewinot Capital Advisers is also relatively very bullish on the stock, setting aside 4.29 percent of its 13F equity portfolio to ULTA.

With a general bullishness amongst the heavyweights, specific money managers were leading the bulls’ herd. Leonard Green & Partners, managed by Leonard Green, created the largest call position in Ulta Beauty, Inc. (NASDAQ:ULTA). Leonard Green & Partners had $92.8 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also made a $33.6 million investment in the stock during the quarter. The following funds were also among the new ULTA investors: Steve Cohen’s Point72 Asset Management, Phill Gross and Robert Atchinson’s Adage Capital Management, and Leonard Green’s Leonard Green & Partners.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Ulta Beauty, Inc. (NASDAQ:ULTA) but similarly valued. These stocks are Shinhan Financial Group Co., Ltd. (NYSE:SHG), NVR, Inc. (NYSE:NVR), Citrix Systems, Inc. (NASDAQ:CTXS), L Brands Inc (NYSE:LB), Insulet Corporation (NASDAQ:PODD), Tyler Technologies, Inc. (NYSE:TYL), and TransUnion (NYSE:TRU). This group of stocks’ market caps match ULTA’s market cap.

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As you can see these stocks had an average of 33.1 hedge funds with bullish positions and the average amount invested in these stocks was $1745 million. That figure was $1438 million in ULTA’s case. L Brands Inc (NYSE:LB) is the most popular stock in this table. On the other hand Shinhan Financial Group Co., Ltd. (NYSE:SHG) is the least popular one with only 6 bullish hedge fund positions. Ulta Beauty, Inc. (NASDAQ:ULTA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ULTA is 75.7. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 17.4% in 2021 through June 18th and still beat the market by 6.1 percentage points. Hedge funds were also right about betting on ULTA, though not to the same extent, as the stock returned 5.8% since Q1 (through June 18th) and outperformed the market as well.

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Disclosure: None. This article was originally published at Insider Monkey.